Microfinance in Mexico

As I sat in the front row and soaked in Muhummad Yunus´every word about how 27 dollar loans transformed women's lives in Bangladesh, I felt inspired by the power of microcredit to lift women out of poverty. Even though microcredit has really taken off in developing countries as a way to combat poverty, it has also become a source of contoversy and heated debate revolving around the high profits reaped by many microfinance institutions.

The need for financial services:

Ever since I moved to Puebla, Mexico, I have been shocked by the number of pawnshops all over the city (sometimes 2 or 3 on one block) and the flooding of advertisements of institutions offering easy and fast access to loans to solve all your needs. In Mexico, only around 32% of the economically active population has access to formal financial services in comparison to approximately 80% in developed countries. In rural areas access to these services is limited to around 5% of the population. (Source: Press release, World Council of Credit Unions) Mexico has more than 60% of its population working in the informal economy and 60% of all of the households in the informal economy are excluded from credit, savings and insurance services.

The lack of access to formal financial services has severe consequences on families, forcing them to utilize loan sharks and pawn shops. Financial inclusion is defined as universal and continual access to integral, formal and adequate financial services that adapt to the needs of the users and therefore contributing to their development and well-being. Financial inclusion allows families to stabilize their consumption, accumulate resources, have investment opportunities and have protection against basic risks in life. (Javier Chavez Minjares, Secretary of Agriculture, PATMIR presentation, 2010)

What are integral financial services?

· Savings account

· Investment

· Credit (loans)

· Remittances

· Insurance

· Payments

· Government transfers, among others.

Microfinance institutions:

(Source: Javier Chavez Minjares, PATMIR presentation, 2010)

There is a plethora of microfinance institutions in Mexico offering diverse services to their clients. Even with all this competition, the average annual interest rate is around 70 percent, compared with a global average of about 37 percent. The main microfinance institution is Compartamos Bank, a Mexican firm that initiated as a small nonprofit organization, and has been at the center of debate since it generated $458 million in a public stock sale in 2007.(New York Times, April 2010) Some of the non-profit organizations that offer microfinance services in Mexico include Fundacion Realidad and Foundation Pro Mujer. Foundation Realidad offers financial and nonfinancial services to families that do not have access to formal banking services to improve their quality of life. (www.kiva.org) Fundacion Pro Mujer offers integral financial services focusing on women and their economic development. Private banks offering microfinance become profitable charging very high interest rates to poor people. Civil society organizations depend on donations to subsidize the cost of microfinance.

Can there be a just and sustainable way to provide microfinance and promote financial inclusion?

What do you think?

Some useful links:

Banks Making Big Profits from Tiny Loans, New York Times, April 13, 2010 http://www.nytimes.com/2010/04/14/world/14microfinance.html

Compartamos Bank: www.compartamos.com

Fundación Realidad: www.fundacionrealidad.org.mx

Fundación ProMujer: https://promujer.org

Kiva, Loans that Change Lives: www.kiva.org

Welcome to the Beck Community Development Foundation

“How wonderful it is that nobody need wait a single moment before starting to improve the world. “ Anne Frank

The Beck Community Development Foundation’s service work in the United States, Mexico and Central America over the past years embodies these words. After numerous aid trips to Central America to assist impoverished communities to build lasting social change capitalizing on Beck’s most valuable assets-the development, design, planning and building skills of its employees-the Beck Foundation made a multi-year commitment to catalyze the improvement of educational infrastructure in San Antonio Juarez, a community one hour outside of the city of Puebla, Mexico. The Beck Community Development Foundation’s approach is to work with the community to identify their needs, collaborate to develop sustainable and lasting infrastructure and assist them in making the most of the assets they possess. The Beck Foundation decided to establish its activities in Mexico because it is a country full of contrasts and social needs.

Mexico´s slow yet solid democratic transition coupled with unprecedented economic growth did not ameliorate the high level of poverty and social inequality as revealed in the statistics cited below.

Poverty: (CONEVAL 2007)

In a country of 107 million people:

· 13.2% of the population lives in extreme poverty, which means that they do not have sufficient resources to obtain a basic food basket.

· 20.7% of the population lives in poverty of capacities which means that they can afford to buy a basic food basket but do not have sufficient resources to invest in health or education.

· 42.6% of the population lives in general poverty, which means that they have access to a basic food basket, education and health but do not have a minimally aceptable standard of living such as adequate clothing and transport for all members of the household.

Social inequality: (CONEVAL 2007)

· Mexico has the highest income inequality out of all countries in Organization for Economic Cooperation and Development (OECD).

· The medium monthly income of the poorest 10% of the population is 1,000 dollars which is lowest than in any other developed country.

· 10% of the richest population holds 39.3% of nation´s wealth

In the face of these stark social indicators, the Beck Community Development Foundation aims to play a critical role in contributing to Mexico’s social development. The Foundation will use a rigorous methodology to identify key social problems, design innovative initiatives that build on community assets and engage other civil society actors in order to maximize resources and impact. The Beck Community Development Foundation is committed to building better futures with communities in need.

We will use this blog as a space to exchange ideas about innovative approaches to social development and to share our experiences in implementing projects to address community needs. We invite you to engage with us, to respond to our blog posts and to share your ideas and opinions in order to enrich this conversation.