How an iPad in a corner store can spell success in Mexico

Tuesday, May 28, 2013

On the outskirts of Mexico City, just past the dusty plateau of a defunct landfill, the cinder block houses of Chimalhuacán crowd a hillside. It’s a city beyond a city, made up of nearly 1 million residents including surrounding areas, yet it lacks many of services and stores one might expect of a city ­– like banks.

Just two bank branches serve this densely populated suburb in Mexico state. The only national chain convenience store opened just a year ago. One mass merchandiser, a low-end brand called Bodega Aurrera owned by Wal-Mart, competes with the hundreds of small mom-and-pop pharmacies and tienditas, or corner stores.

Without easily accessible banks or ATMs, many residents lack access to basic financial services and have trouble paying their monthly bills due to the inconvenience of long lines and the cost of transportation to and from the few locations available. Mexico has a history of “unbanked” classes due to the size of the informal economy, low incomes, and the high concentration of assets among relatively few banking institutions. While recent legislation aims to encourage banks to expand both their reach and lending, more than half of Mexican municipalities still lack even one bank branch, according to the World Bank. In the interim, innovative programs like Barared have stepped in to fill the gap.

Barared offers banking and bill-paying services in booths set up in small corner stores. The company is simultaneously taking on the issue of access to money and bill management for residents, while building small stores’ capacity to compete with the big box stores that sooner or later will move in to the community. It’s a business backed by a new sort of venture capital known as “impact investment,” funding with an eye on both financial and social returns.

With so few banks serving the Chimalhuacán area, there is “absolutely no way you will achieve financial inclusion,” says Alvaro Rodriguez Arregui, founder of the six-year-old IGNIA impact investment fund in Monterrey, Mexico. IGNIA has supported Barared with injections of about $6.1 million since 2010.

Source: The Christian Science Monitor (link opens in a new window)

business development, financial inclusion