Challenges and Advantages of Serving Marginal Rural Challenges and Advantages of Serving Marginal Rural Markets through Financial Cooperatives: Lessons from Markets through Financial Cooperatives: Lessons from

Mexico’s Rural Microfinance Technical Assistance Mexico’s Rural Microfinance Technical Assistance Project (PATMIR)Project (PATMIR)

Gabriela Zapata ÁlvarezGabriela Zapata Álvarez

COOPERATIVE FINANCE: GLOBAL GOOD PRACTICESCOOPERATIVE FINANCE: GLOBAL GOOD PRACTICES

The World BankThe World Bank

Washington, DC – 10 March 2007Washington, DC – 10 March 2007

SUBSECRETARÍA DE DESARROLLO RURALDirección General de Programas Regionales y Organización Rural

Dirección de Fomento de Organizaciones Financieras

Income-smoothing

Asset accummulation

Investment opportunities

Household:

Fuel local economy

Reduce income inequalities

Community: P O

V E

R T

YR

E D

U C

T I

O N

E F

F O

R T

Integrated (savings, credit, remittances, etc.)

Adapted / Demand-driven according to market segments

CREDIT

Commercial Banks?

Development Banks?

MFI’s

Savings & Credit Cooperatives

Other FI’s Proximity Mission Market knowledge Member-owned Numerous

Proximity Mission Market knowledge Member-owned Numerous

Specific Regulation

Special Programs

Defining Government InterventionDefining Government Intervention

It won’t happen spontaneously (other than informally), in the short / medium term and even long term

MRA=Marginal Rural Areas

FEDERAL GOVERNMENT SUPPORT PACKAGE TO PROMOTE FORMALIZATION

FEDERAL GOVERNMENT SUPPORT PACKAGE TO PROMOTE FORMALIZATION

MRA=Marginal Rural Areas

Promote access to formal financial services that are

savings-based, demand-driven and sustainable in marginal

rural areas

BANKING THE RURAL POORBANKING THE RURAL POOR

All market segments living in communities of ≤10,000 inhabitants in municipalities with very high, high &

medium marginality levels*

*CONAPO: Consejo Nacional de Población (National Population Council)

Savings Accounts • Investment • Credit • Remittances Insurance • Check-cashing • Utility Payments

Government Transfers • etc.

OUR TARGET POPULATION:OUR TARGET POPULATION:

INTEGRATED REGIONAL STRATEGY

…led by Specialized Technical Assistance Providers

INTEGRATED REGIONAL STRATEGY

…led by Specialized Technical Assistance Providers

CSGCSGCSGCSG

CSGCSGCSGCSG

R E G I O N(3-5 yrs)

R E G I O N(3-5 yrs)

CONTRACT: Work Plan

FIFIFIFI

Mobile Mobile

ServicesServices

Field Field PromotersPromoters

FI: Financial Intermediary CSG: Credit & Savings Group

FIFIFIFI TA

SPECIALIZEDSPECIALIZEDTA PROVIDERTA PROVIDER

SPECIALIZEDSPECIALIZEDTA PROVIDERTA PROVIDER

FI SELECTION CRITERIA:

Willingness & capability to comply with the law

Willingness & capability to expand services to marginal rural areas

Willingness to work with specialized agency according to Contract &

Work Plan

BranchesBranches

ServiceServicePointPoint

Huasteca

• Chiapas-Tabasco• Huastecas• Puebla-Tlaxcala

• Guerrero• Oaxaca

• Veracruz• Michoacán

Oaxaca

Michoacán

Puebla y Tlaxcala

VeracruzChiapas y Tabasco

Guerrero

77 REGIONAL PROJECTSREGIONAL PROJECTS = = 1010 States States 77 REGIONAL PROJECTSREGIONAL PROJECTS = = 1010 States StatesTA CONTRACTS

APPROACHES:

STRENGTHENED = 14

CREATED = 12

EXPANDED = 6

SOURCE: Julia Paxton, 2005

US $31 M

US$35 M

SOURCE: Julia Paxton, 2005

74%

STUDIES

PANEL SURVEY

STUDIES

PANEL SURVEY

F

E

E

D

B

A

C

K

Analysis to-date: BASE-LINE (2004) , comparing clients of

PSCS as a whole vs PATMIR FI clients

Analyzes the use of financial services, household expenditures and assets, economic activities of the household, receipt of remittances,

and economic shocks faced by the household

Analyzes the use of financial services, household expenditures and assets, economic activities of the household, receipt of remittances,

and economic shocks faced by the household

BANSEFI & SAGARPA

5 years (2004-2008)

5,800 households: 1,492 in communities served by PATMIR FIs 2/3 of sample is rural & 1/3 urban Treatment: ½ “banked” – Control: ½ “unbanked”

0

1

1% male

% urban

Adult literacy (%)

IncomeNEW

Country average

0

1

1% male

% urban

Adult literacy (%)

IncomeSTRENGTHEN

Country average0

1

1% male

% urban

Adult literacy (%)

IncomeEXPAND

Country average

DEPTH OF OUTREACH INDEX (DOI)DOI = Sums differences between

institutional outreach avg. (i) and country avgs. (c) for (N) categories of people

excluded from formal finance (e)

DEPTH OF OUTREACH INDEX (DOI)DOI = Sums differences between

institutional outreach avg. (i) and country avgs. (c) for (N) categories of people

excluded from formal finance (e)

STRENGTHENED

CREATED

EXPANDED

DOI= )(1

cnin

N

n

ee

SOURCE: Julia Paxton, Analysis of Mexico’s PATMIR Project, 2005

Strengthened

US$336Created

US$272Expanded

US$90

Strengthened

US$336Created

US$272Expanded

US$90

Jan. 2007:

CURRENT COST OF “BANKING” AN INDIVIDUAL

CURRENT COST OF “BANKING” AN INDIVIDUAL

COSTOS PROMEDIOFASE 1

9,0806,7443,4452,7572,1472,096

PHASE 1: INVESMENT, USERS & UNITARY COST, 2003-2007

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2002 2003 2004 2005 2006 2007

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Inversión Socios Costo promedio

$2,096

$361MDP

172,520

COSTOS PROMEDIOFASE 1

9,0806,7443,4452,7572,1472,096

PHASE 1: INVESMENT, USERS & UNITARY COST, 2003-2007

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2002 2003 2004 2005 2006 2007

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Inversión Socios Costo promedio

$2,096

$361MDP

172,520

(Mexican Pesos)

OUTCOMES:• Physical & Human

Capital

• Sustainable and Regulated FIs

• Permanent access to integrated financial services by households and individuals in marginal rural areas

OUTCOMES:• Physical & Human

Capital

• Sustainable and Regulated FIs

• Permanent access to integrated financial services by households and individuals in marginal rural areas

NOTE: Unitary Cost is based on new users only.

US$190

The marginal rural population constitutes a viable market.

No single methodology / technical consultant is required for attaining good results. Various models and approaches can be used to reach the rural poor successfully and sustainably. Adapting to local conditions has been essential to success.

Existing institutions bring a pre-established culture, which has a high price.

New institutions require high start-up costs, but creation of a new FI can be justified in some cases and be successful with adequate support.

Providing financial services in marginal rural areas does not impede compliance with regulatory requirements.

Operational sustainability can be achieved by new FIs in 3-5 years.

Obstacles to providing services to the rural poor can be overcome through adaptation and innovation.

Governance

Human Capital

Portfolio quality

Remaining in marginal rural areas

Rural infrastructure and security

Institutional Context: Regulation & Supervision

Sector Networks

CNBV

Conf.

Feds.

FIs

CongressGov. Auth.

COOPS.Organized

NOTcomplying

FIs.Not Organized

Illegal

Lobbying to change regulation

Capacity to autorize & Supervise

Mergers

Incentives to Federate

Financial Literacy

Aux. Superv. & TA

Take action to close down?

UNSUPERVISEDCost vs Risk

Role of Government & donors?