Enabling Policies for Integrated Financial Services in Mexico's Marginal Rural Areas

1. Enabling Policies for the Development of Integrated Financial Services in Mexico’s Marginal Rural Areas: Lessons from the Rural Microfinance Technical Assistance Project (PATMIR) Gabriela Zapata Álvarez INTERNATIONAL CONFERENCE ON RURAL FINANCE RESEARCH Rome, 20 March 2006 SUBSECRETARÍA DE DESARROLLO RURAL Dirección General de Programas Regionales y Organización Rural Dirección de Fomento de Organizaciones Financieras

2. PATMIR'S FOCUS 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

3. MEXICAN FINANCIAL SYSTEM

4. PUBLIC POLICY IN FAVOR OF STRENGTHENING THE PSCS • Comprises 3 strategic elements: • New Regulatory Framework: Popular Savings & Credit Act (PSCA) • 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 • Federal Government’s temporary support package to strengthen the institutionalcapacity of the Sector: • L@ Red de la Gente • Studies, monitoring & Impact Evaluation • Promotional Campaign • Technical Assistance • Training • Tecnological Platform • Training of Supervision Committees PSCS = Popular Savings & Credit Sector

5. POPULAR SAVINGS & CREDIT ACT • Provide security to savers participating in the PSCS • Order, develop & consolidate popular financial institutions Objetives: April 2001 PSCA Approval 2001-2005 Transition • Jan. 2006 • Authorization • “Conditioned Extension”- Dec 2008 PSCS adjusts operations, organization and indicators to comply with regulation Conduct General Assembly, obtain B+,B, C grade, Work Plan FEDERAL GOVERNMENT SUPPORT PACKAGE TO PROMOTE FORMALIZATION MRA=Marginal Rural Areas

6. PATMIR'S OBJECTIVE Promote access to formal financial services that are savings-based, demand-driven and sustainable in marginal rural areas through the provision of specialized TA

7. STRATEGY How? INTEGRATED REGIONAL STRATEGY LED BY SPECIALIZED TECHNICAL ASSISTANCE PROVIDERS

8. 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 INTEGRATED REGIONAL STRATEGY SPECIALIZED TA PROVIDER CONTRACT: Work Plan FI FI T A R E G I O N (3-5 yrs)   Field Promoters Branches Mobile Services  Service Point  CSG  CSG FI: Financial Intermediary CSG: Credit & Savings Group

9. PATMIR'S MAIN COMPONENTS TA COST COMPENSATION FOR EXPANSION 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 targeted & declining subsidies for branch expansion and operation for a period of up to 3 years per branch

10. PATMIR'S LINES OF WORK TA COST-COMPENSATION FOR EXPANSION

11. 7 Regional Projects = 10 States • Chiapas-Tabasco • Huastecas • Puebla-Tlaxcala Huasteca Puebla y Tlaxcala Michoacán Veracruz • Guerrero • Oaxaca Guerrero Chiapas y Tabasco Oaxaca • Veracruz • Michoacán

12. RESULTS, 2003-2006

13. INVESTMENT, USERS & AVG. COST, 2003-2007

14. MULTI-LAYERED M&E SYSTEM F E E D B A C K • STUDIES • PANEL SURVEY

15. PANEL SURVEY 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 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

16. PANEL SURVEY PSCS = Popular Savings & Credit Sector

17. PANEL SURVEY: PRELIMINARY FINDINGS • 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

18. PROJECT DESIGN: KEY CARACTERISTICS

19. KEY FINDINGS • 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.

21. THANK YOU! GABRIELA ZAPATA ÁLVAREZ Director of Promotion of Financial Organizations SAGARPA – MÉXICO Email: forgfin.dgpr@sagarpa.gob.mx