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November, 2012

Mexican Microfinance Landscape. November, 2012. Savings & Loans Entities. Savings & Loans Entities .

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November, 2012

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  1. MexicanMicrofinanceLandscape November, 2012

  2. Savings & Loans Entities

  3. Savings & Loans Entities • At the end of the 90’s, and in an effort to strengthen and promote the development of the popular finance sector, Mexican authorities began work on the incorporation of previously unregulated savings and loans entities to the regulatory framework. • After a lengthy development process, on June 4, 2001, the first Popular Savings Law was issued. It established a legal framework for two kind of entities: the Popular Financial Societies (for-profit) and the Savings Cooperative Societies. • It also introduced the concept of Federations to which Cooperatives and Popular Financial Societies were required to affiliate with. These Federations were thought both as trade representatives and technical consultants for their members, and as aids for the CNBV’s oversight function (auxiliary supervision).

  4. Savings & Loans Entities • The Law recognized the great heterogeneity of the Mexican market, where some entities are extremely small, while others are as large as banks. • It distinguished and classified entities in 4 categories, in terms of their asset size, their geographical coverage and the number of clients (it excluded from CNBV supervision small-scale informal schemes). • The 4 level classification served as basis for an escalating regulatory regime, where smaller, less complex entities were subject to simpler prudential requirements than those applicable to the larger, more geographically extended S&L’s. • Likewise, it was thought that smaller entities should focus on a more restricted range of operations (shorter loan maturities and amounts), while more ‘complex’ operations should be reserved for larger entities (leasing, credit cards, factoring, etc.).

  5. Savings & Loans Entities • The Law also provided for the creation of a deposit insurance fund, a very important feature in an up-to-then non-regulated industry. • Throughout the years, the Law and its regulations have been amended several times to recognize the changing business environment and provide an up-to-date legislation in recognition of the sector’s development. • The most important legal reform came in 2009. The previously unified Savings and Loan sector was split with the introduction of a specific law for Savings Cooperatives, in recognition of their distinct nature and aims. As a result, the industry is now governed by two laws: • The Popular Savings Law (concerned with for-profit Popular Financial Societies). • The new Savings & Loans Cooperative Law.

  6. Savings & Loans Entities • An important feature of the new Law is the revamping of the mandatory deposit insurance system: • There are now 2 separate funds, one for each type of S&L entity, • The funds are now placed in trusts, • The government will contribute with resources (in addition of the quotas paid by the insured S&L societies). • The new Law introduced a new type of Popular Financial Society (for profit), focused on rural finance; these entities will have to comply with regulation tailored to the peculiarities of the agricultural activities which they are to finance. • These rural finance entities are part of the Authority’s effort to develop microfinance vehicles, particularly in the often overlooked rural communities.

  7. Productive Microcredit

  8. Productive Microcredit • In order to promote the development of microfinancial activities, the most recent S&L regulations issued by CNBV introduce the concept of Productive Microcredit, which is defined as: • Credits granted to clients, or to groups of clients, aimed to finance their productive activities and whose source of repayment are the income flows originated by said productive activities. • When processing the loan application, S&L entities are required to: • Carry out a visit to the applicant’s place of business. • Analyze the applicant’s payment ability, the viability of the productive activity to be financed. • Review the applicant’s credit report. • CNBV has established that these additional requirements and the fact that source of repayment is a known productive activity merit a lower loan-loss reserve regime.

  9. Productive Microcredit • Entities must insure that their clients are not overburdened by debt when applying for the loan (debt according to credit bureau reports should not exceed 6,500 USD). • Individual Microcredits should not exceed 4,500 USD. • Group Microcredits should not exceed 7,500 USD by group, nor 1,000 USD per member.

  10. Niche Banks

  11. Niche Banks • Niche banks are relatively new type of bank, specialized in a limited set of operations, and with lower minimum capital requirements; there take two forms: • Financial services banks, focused on deposit taking, trading securities, investing in other banks, trading with precious metals and currencies, managing estates, liquidating entities and making valuations, etc. • “Means of payment” banks, specialized on deposit taking through debit and prepaid cards and mobile accounts; they provide consumers with financial services and enable cheaper and widespread access to the formal financial system: • Credit and loan taking • Trading securities • Issuance of credit cards and other means of payment

  12. BankingAgents

  13. BankingAgents • Lack of banking penetration in some parts of the country, coupled with a policy to foster financial inclusion led to the development of the banking agent regime in Mexico. • Banking agents are third parties (usually shops, post offices, petrol stations) that offer financial services on behalf of a bank and work as a “window” between the latter and its customers. • Their main operations include: • Payment of services in cash, credit, debit or prepaid cards and checks. • Check and cash deposits, cash withdrawal. • Credit payments. • Money transfers to be paid through bank branches or other agents. • Balance inquiries.

  14. BankingAgents • Banking agents increase distribution points for financial services, and take the financial system to previously untended regions (i.e. usually low-income regions). • The banking agent regime, lowers costs and makes it feasible to provide traditional and microfinance products to these communities. • Mobile banking agents operate through mobile phones, providing consumers everywhere with immediate access to basic financial services: • Cash withdrawal, • Cash deposits to mobile accounts, • Fund transfers to mobile and traditional banking accounts, • Balance inquiries.

  15. Alfonso Gurza agurza@cnbv.gob.mx November, 2012

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