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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Regulation, Competition and Growth of Microfinance Suppliers: The Case of Mexico |
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| Institution | University of Zurich |
| Faculty | Faculty of Economics, Business Administration and Information Technology |
| Number of Pages | 73 |
| Date | 2015 |
| Abstract Text | Since the beginnings of the 1990s, the Mexican government has played an active role by leading structural reforms in order to (1) to lower entry barriers, (2) promote industry growth and (3) establish a proper legal framework for the development of micro credit institutions (Comisión Nacional Bancaría y de Valores, 2012a). These reforms are expected to increase access to credit for the poor (improving outreach), while increasing competition in the market. By adopting an ad-hoc approach, the Mexican government has actively intervened in order to attenuate market inefficiencies. As part of these interventions, programs as the Programa Nacional de Financiamiento al Microempresario (PRONAFIM) and Fondo para el Desarrollo Social de la Ciudad de México (FONDESO) have been established in order to support the microfinance development across unreached areas, offering expert advice as well as funds to microfinance institutions (MFIs) (Programa Nacional de Financiamiento al Microempresario, n.d.). Based on this ad-hoc approach, the government has issued more specific reforms oriented to promote information sharing institutions, as well as reducing regulatory burdens for non-commercial banking institutions (Banco de México, 2014). In this context, a set of financial charters took place allowing micro credit lenders to benefit from a laxer regulatory regime (Banco de México, 2014). As a result of these expansionist reforms, the Mexican market has experienced the emergence of different types of institutions having diverse purposes, while serving the same population (Marulanda Consultores & DAI México, 2011). In other words, the Mexican market is characterized by not having a singular legal entity labeled as microfinance, contrariwise it hosts several legal entities offering credit to the poor without necessarily sharing the same purposes as MFIs (Marulanda Consultores & DAI México, 2011). Aligned with other Latin American countries, Mexico has known an important level of institutions commercialization and transformation (downscaling, upgrading) (Dacheva, 2009). In this context, big players as Banco Azteca and Banco Walmart had appeared, hence serving low-income borrowers, while chasing different purposes than MFIs (consumption lenders) (Bruhn & Love, 2009). Even thought these players have reached an important amount of unbaked borrowers (70 % of the population that has been refused from lending schemes) (Bruhn & Love, 2009), and the number of institutions had increased, the Mexican market still lacks of competition (Maudos & Solís, 2007). This assertion may result on a paradox in terms of outreach and could be explained by the lack of efficient competitors. Three major players - Compartamos, Provident Mexico and Independencia - control more than 60% of the microfinance market share in terms of loan portfolio size and enjoy from high profit margins (Rosenberg, 2007). As small and medium legal entities are unable to put pressure on prices due to their low profit/costs ratios, the consequence is reflected on higher prices for the poor (Marulanda Consultores & DAI México, 2011). In addition to these findings, information-sharing activities in respect to micro borrowers credit history is fully attributed to one single institution, namely buró de crédito, leading to a monopoly situation (Negrin, 2001). This situation as well as the lack of efficient competition has raised doubts about the existence of some loopholes in the reforms. Even if reforms’ orientation have been mostly aligned with authors’ opinion such as Morduch (2005), Rosengard (2009) and Hubka and Zaidi (2005), while lowering significantly entry barriers, objectives have not yet been achieved in terms of institutions outreach and efficient competition. |
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