Source: World Bank.
Original press release available here.
Mexico City, September 9 —Today the World Bank’s Board of Executive Directors approved an additional USD 50 million to assist the Mexican Government in strengthening savings and credit institutions in the rural sector. This project comes about as support to the Public Saving and Credit Law approved in 2001. The Law combined legal and regulatory reforms with public investment to create and strengthen the capacity of the savings and credit institutions in the rural sector, as well as the regulatory agencies that supervise them.
Currently, the World Bank (WB) supports Mexican authorities in this area through the Savings and Rural Finance Project, which is now in its second phase of implementation. The USD 50 million will be spent to close the financial gap that arose in the first phase of its implementation. The increase in the project’s cost is due to some changes generated in the Law, particularly in the extension of the deadlines for certification.
“We are very happy to continue supporting the Mexican Government in this effort. To this date, sixty-nine financial institutions have been certified and another three applications are being considered by the National Banking and Securities Commission, the regulatory agency. We also know that there are another two hundred and sixty-six entities that are almost ready to be certified. Jointly, all of them make up ninety percent of the membership in the sector. We hope this takes place by December of 2010¨, stated Axel van Trotsenburg, Director of the World Bank for Mexico and Colombia.
The poor quality of formal financing services brings with it high transaction costs for those that are outside the banking system, particularly in paying public services, transferring money, cashing checks by non-account holders (including transfers from government social programs like Procampo and Oportunidades), high interest rates for alternative loans, and low interest payments for savers.
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There are also supply factors that contribute to low penetration: inadequate service points, badly located and inconvenient financial products, complicated procedures, minimum balance requirement for opening accounts, etc.
In response to these issues, an important part of the loan will contribute to lowering transaction costs, broadening access to financial services for poor people in rural areas, and offering diverse financial products, such as credit cards, debit cards, Internet banking and access to automated teller machines, among others. The loan also contemplates financial education for poor people in rural areas through selected participating institutions.
The Savings and Rural Finance Project is made up of four components:
• Strengthening, regulating and supervising credit and savings institutions
• Developing and implementing a technological platform
• Monitoring and evaluating, as well as distributing information
• Administering the project
¨The World Bank is pleased to continue the support that it has been giving BANSEFI for several years. We have witnessed great advances throughout this period. There are still goals to be met and we are trying to close the existing gap between the supply and the demand of financial services for the needy ¨, added van Trotsenburg.
The World Bank’s assistance to the savings and credit sector through the National Savings and Financial Services Bank (BANSEFI) in Mexico began in 2002 and consisted of financing four projects presented in sequence, which are being implemented parallel to each other. Including the additional financing, the total cost of the project will be approximately USD 300 million, of which the WB will finance USD 154.5 million (about 52 percent), the Government USD 74.1 million, and the participating financial entities, USD 71.9 million.
The project is aligned with the new Country Partnership Strategy that the WB signed with the authorities, which identifies inadequate access to financial services as one of the impediments to improving the country’s competitiveness and includes initiatives for developing financial and rural sectors in Mexico under the pillar ¨economic competitiveness and generation of employment.”
The activities to be financed under the present loan will be implemented by consultants, and hardware and software service providers will be administered/coordinated through appropriate BANSEFI department teams, which will continue to be the project’s executor.
The additional financing consists of a flexible loan with a fixed spread denominated in US dollars, with a 15 year grace period. The total amount is to be repaid in a single installment on September 15, 2023. A Front-end Fee (FEF) of 0.25 percent over the total amount has been agreed, that is, USD 125,000 to be covered outside the procedures pertaining to the loan.
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