Enabling Policies for the Development of Integrated Enabling Policies for the Development of Integrated Financial Services in Mexico’s Marginal Rural Areas: Financial Services in Mexico’s Marginal Rural Areas:

Lessons from the Rural Microfinance Technical Lessons from the Rural Microfinance Technical Assistance Project (PATMIR)Assistance Project (PATMIR)

Gabriela Zapata ÁlvarezGabriela Zapata Álvarez

INTERNATIONAL CONFERENCE ON RURAL FINANCE RESEARCHINTERNATIONAL CONFERENCE ON RURAL FINANCE RESEARCH

Rome, 20 March 2006Rome, 20 March 2006

SUBSECRETARÍA DE DESARROLLO RURALDirección General de Programas Regionales y Organización Rural

Dirección de Fomento de Organizaciones Financieras

BANKING THE RURAL POOR

RURAL MUNICIPALITIES WITH VERY HIGH, HIGH AND MEDIUM MARGINALITY LEVELS* with at least 70% of new users living in communities of ≤10,000 inhabitants

DIVERSIFIED POPULATION: women, men, adolescents, childen, artisans, farmers, housewives, teachers, migrant workers, entrepreneurs, etc.

MULTIPLE FINANCIAL SERVICES that are savings-based and demand-driven: savings accounts, investment, credit, remittances, insurance, check-cashing, utility payments, distribution & recovery of government subsidies, etc.

*INEGI: Instituto Nacional de Estadística, Geografía e Informática

Comprises 3 strategic elements:

1. New Regulatory Framework: Popular Savings & Credit Act (PSCA)

2. BANSEFI becomes a Development Bank with 3 mandates:

Promote a savings culture (emphasizing lower-income populations) Become the Sector’s Central Bank Coordinate the Federal Government’s tempiorary support package to the Sector

3. Federal Government’s temporary support package to strengthen the institutional capacity of the Sector:

Technical Assistance Training Tecnological Platform

L@ Red de la Gente Studies, monitoring & Impact Evaluation Promotional Campaign

Training of Supervision Committees

PSCS = Popular Savings & Credit Sector

Objetives:–Provide security to savers participating in the PSCS

–Order, develop & consolidate popular financial institutions

April 2001PSCA Approval

2001-2005TransitionPSCS adjusts operations, organization and indicators to comply with regulation

Jan. 2006• Authorization• “Conditioned Extension”- Dec 2008

Conduct General Assembly, obtain B+,B, C grade, Work Plan

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 through the provision of specialized TA

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

Provision of specialized technical assistance & training

to FI’S by highly-qualified Consultant Firms selected through an international

tendering process for a period of 3-5 years

Provision of specialized technical assistance & training

to FI’S by highly-qualified Consultant Firms selected through an international

tendering process for a period of 3-5 years

COST COMPENSATIONCOST COMPENSATIONFOR EXPANSIONFOR EXPANSION

COST COMPENSATIONCOST COMPENSATIONFOR EXPANSIONFOR EXPANSIONTATATATA

Provision of targeted & declining subsidies for branch expansion and operation for a

period of up to 3 years per branch

Provision of targeted & declining subsidies for branch expansion and operation for a

period of up to 3 years per branch

COST-COMPENSATIONCOST-COMPENSATIONFOR EXPANSIONFOR EXPANSIONTATA

Huasteca

77 Regional Projects = Regional Projects = 1010 States States

• Chiapas-Tabasco• Huastecas• Puebla-Tlaxcala

• Guerrero• Oaxaca

• Veracruz• Michoacán

Oaxaca

Michoacán

Puebla y Tlaxcala

VeracruzChiapas y Tabasco

Guerrero

STUDIES

PANEL SURVEY

F

E

E

D

B

A

C

K

BANSEFI & SAGARPA

5 years (2004-2008)

5,800 households

1,492 reside in communities served by PATMIR FIs

2/3 of sample are rural & 1/3 is urban

Treatment: ½ “banked” – Matched: ½ “unbanked”

Analysis so far: Base-line (2004), comparing clients of PSCS as a whole vs PATMIR FI clients

Use of financial services, household expenditures and assets, economic activities of the household, receipt of

remittances, and economic shocks faced by the household.

PATMIR(All)

PSCS(All)

PATMIR(Rural)

PSCS (Rural)

Education Level of Female Head

5.2 yrs 6.3 yrs 4.6 yrs 5.3 yrs

Monthly income

(median)mp$2,520 mp$3,780 mp$2,400 mp$2,520

Monthly expenditures

(median)mp$1,970 mp$3,199 mp$1,770 mp$2,350

Assets

Durables: mp$3,000

House size: 3 rms

Piped water: 24%

Durables mp$4,800

House size: 3.5 rms

Piped water: 62%

House size: 2.9 rms

Piped water: 39%

House size: 3.1 rms

Piped water:39%

PSCS = Popular Savings & Credit Sector

PATMIR is attracting clients with lower income and wealth levels in both rural and urban areas

Banked and unbanked populations have very similar characteristics in rural areas

61% opened their account after PATMIR

Remittances are important:

Receivers – Median acc. balance: mp$4,350

Non-receivers – Median acc. balance: mp$1,200

Loans to PATMIR clients: 2/3 of rural clients & 38% of urban

Neither home nor land ownership is significantly associated with having a loan.

Level of education is not a factor for obtaining a loan in the PATMIR sample

InnovativeInnovative

CompensatoryCompensatory

ResultsOriented

ResultsOriented

Intensive On-site

TA

Intensive On-site

TA

Multi-annualMulti-annual

SelectiveSelective

STANDARDIZEDFRAME OF

REFERENCE(LACP-GAE)

STANDARDIZEDFRAME OF

REFERENCE(LACP-GAE)

Marginal rural population constitutes a viable market.

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

Synergies among all actors are important to ensure win-win scenarios.

Creation of FIs more expensive than Expansion, but adequate in some cases.

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.

Various models and approaches can be used to reach the rural poor successfully.

GABRIELA ZAPATA ÁLVAREZDirector of Promotion of Financial Organizations

SAGARPA – MÉXICO

Email: forgfin.dgpr@sagarpa.gob.mx