A Light in the Darkness
Monday, June 29, 2015
Some mountainous parts of Mexico are so remote that the electricity grid fails to reach them, let alone the banking system. A five-year-old social enterprise, Iluméxico, hopes to change that. It provides more than 20,000 people with loans to buy low-cost solar panels and batteries, enabling them to switch lights on, watch television and charge mobile phones, sometimes for the first time.
It also introduces them to the financial system via those same mobile phones. It has launched a pilot project enabling them to pay off the loans in instalments via an SMS-based payment system, Transfer, owned by Banamex, one of Mexico’s biggest banks. Most have no credit history, so Iluméxico takes a big risk in lending to them. Manuel Wiechers, its boss, says they are often late with their payments because rural incomes are unstable. But they are keen to maintain access to credit, so their ultimate default rates (currently 5.8%) are only slightly above the national average.
Until recently such people had little hope of getting credit other than from loan sharks or pyramid schemes. Mexican high-street banks have signally failed to provide services to the rural poor: the country has fewer branches per 10,000 people than neighbouring Guatemala, which has a much lower GDP per person. Less than 7% of the 4m microbusinesses that make up 95% of all firms in Mexico had access to bank credit in 2013.
So Mexican authorities are hoping that technology can help Mexico to “leapfrog into modernity”, in the words of Agustín Carstens, governor of the central bank. Mobile banking offers a simple way to expand services to the unbanked. The bigger challenge is credit, which is where “fintech” firms such as crowdfunding platforms see an opportunity.
On June 19th the National Banking and Securities Commission (CNBV), which regulates the industry, gave its first licence to a peer-to-peer (P2P) lender, Kubo.Financiero, which aims to provide loans to microbusinesses such as mom-and-pop grocery stores, funded by anyone with spare cash to lend. The CNBV is creating a regulatory framework that will enable more crowdfunding platforms to become regulated bodies. It has also been trying to encourage more mundane efforts to reach the unbanked, through mobile banking.