The Wall Street Journal (WSJ)/(Dow Jones) reported that Grupo Financiero Banorte SAB (Mexico’s fifth-biggest bank) is closing its microfinance division Creditos Pronegocio. The bank suffered losses of USD 8.4 million for 2008. Alejandro Valenzuela, Grupo Financiero Banorte, chief executive stated to the WSJ that the bank has been in liquidation mode since 2008 and that they “feel that right now it is a major distractions from the big challenges we face.”
Are International Banks withdrawing their stake/interest in Mexico’s MFIs to focus on core businesses?
As the global recession continues to pressure major commercial and investment banks to limit their lending capabilities and reduce their capital expenditures, funding from private equity and venture capital alike for the large untapped pool of Mexican customers needing small loans will also be limited. Funding for MFIs has decreased throughout Mexico with competitive pressure from MFI rivals easing as well. Ken Parks of the Dow Jones newswire reported that HSBC Holdings (which owns Mexico’s fourth largest bank) sold its 18.7 percent stake in microfinance institution Financiera Independencia SAB (Independencia) back to the company’s majority shareholders for USD 145 million in November 2008. HSBC decision to sell its stake was done so on order to focus on its core business while increasing savings. Regardless of HSBC Holdings stake selloff, Independencia has reported a strong return-on-equity (ROE) of 31.5 percent and Banco Compartamos SA(Compartamos), another micro-lender, saw a return on average equity at 44 percent. While Mexico’s microfinance industry faces a challenging year for funding in 2009, both companies (Independencia and Compartamos) are nonetheless optimistic and expect their loan book to roughly grow between 10 to 25 percent for 2009. This rate compares favorably with the banking sector as the WSJ reports that the Association of Mexican Banks has forecasted moderate growth of 6 to 8 percent.
According to the Economist Intelligence Unit’s report “2008 Microscope on the Microfinance Business Environment in Latin America,” Mexico ranks 10th for best business environment for microfinance in Latin America. The country is the second largest economy in Latin America and is moving towards international accounting standards, although standards still vary widely, based on the institutional size, regulatory and juridical status. Presently, standardized accounting practices for MFIs under different juridical forms are underway at MFI networks. Regulations for savings and credit entities, (EACPS), have been adjusted to better accommodate microfinance activities, such as “the capacity to carry out personal visits to asset creditworthiness (and to consult a credit bureau).”
The National Commission of Banks and Securities (CNBV) adjusted regulations for EACPs in January 2008. A key challenge for Mexico is that the CNBV lacks sufficient specialized staff to create effective regulations and perform field visits to MFIs with various laws applying to different institutions. Also, banks are discouraged from “downscaling” into microfinance due to strict prudential standards and little interest by commercial banks (main financial institutions in Mexico) to convert into MFIs.
As reported by MicroCapital on March 20, 2009, the global ratings agency, Fitch Ratings has reported that while the global recession has seriously impacted countries in Latin America and the Caribbean region (LAC), the size and integration of MFIs in the respective countries (including Mexico) may help determine the resiliency of the region.
MicroCapital also recently published a two-part series Paper Wrap-Up entitled, “2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean (LAC).” For additional information on the state of the business environment for Microfinance in these regions please see LAC (Part I) and LAC (Part 2).
By Zoran Stanisljevic
Additional Resources:
Morning Star: Mexico’s Microfinance Industry Undergoes Shake-Up On Crisis
MicroCapital Story, March 2009: Microfinance Continues to Play a Key Role in Developing Economies as Remittances to Latin America and the Caribbean Decline in 2009.
MicroCapital Story, February 2009: PAPER WRAP-UP: 2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean (LAC), (Part I of a II part series)
MicroCapital Story, March 2009: PAPER WRAP-UP: 2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean (LAC), (Part II of II)
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