Despite economic gains in recent years, Mexico’s financial services industry has yet to reach all potential customers. In cities, as little as 15 percent of the population have access to financial accounts. In rural areas, the percentage plummets to six percent. These figures are partially due to limited supply of services, especially in rural areas, as well as demand-side constraints such as low levels of education, and negative perceptions of banking in general.

CGAP is planning a project with Te Creemos, a regulated microfinance institution, to test different models of rural service delivery. The project will focus on mini-branches, as well as cashiers in a pharmacy chain and independent retail stores. CGAP will test customer and cashier response to financial services delivered with point-of-sale (POS) and biometric technologies.

Rural Challenges
In several small towns in the southern state of Chiapas, financial services vary. For example, the town plaza of Teopisca (population around 8,000) has a Banorte ATM and branches of Grameen Mexico, Caja Populare San Juan Bosca and Bansefi. A few blocks from the town center is a Banamex Aqui agent. While there does seem to be a push for more services in rural areas, many rural municipalities have yet to be reached by financial services, costs are still prohibitively high for many potential customers, and each institution offers only a limited range of services.
Customers may have a savings account with one institution, get credit from another, and receive remittances through yet a third institution. Financial services in small towns like Teopisca are expensive and inconvenient. This keeps many people from using the services. And poor customers in rural areas tend to have no credit history with either of Mexico’s two credit bureaus.

Customers in urban areas tend to have a credit history, thought oftentimes that history is not very good. We met with one microfinance institution which explained that in Mexico City, loans are appropriaet for only one of every four customers. They accept clients without prior credit history, but do not accept those with a bad credit history. This is happening in an environment where the availability of credit is increasing.

Recent years have seen a proliferation of new entrants, such as Banco Azteca, Coppel, Wal-Mart, and Te Creemos. While some new providers are entering rural municipalities, these new entrants have thus far had the greatest impact on increasing access to credit in urban areas. In theory, increased competition should result in lower costs to the customer. But given the immense unmet demand for financial services, and the fact that so many new entrants focus on savings and consumer credit rather than working capital loans such as those provided by the many established microfinance institutions in Mexico, this likely will not be sufficient to reduce costs for poor customers.

Will technology be the key to improving access to a broader range of affordable products in both rural and urban areas? Will regulation be sufficiently open to innovations in the delivery of financial services?

There is promise in the potential for technology to improve efficiency and bring more licensed institutions to rural areas to deliver a range of services, but only if it is accompanied by sufficient consumer education and awareness efforts.