Microfinance in Mexico: The role of small loans

e-MFP, 7 Jul 2014

My latest post on the credit bubble in Mexico had one especially interesting comment.  Jose Manuel asked to consider the loan sizes in the country as a factor that might explain the prevalence of multiple borrowing.

The comment is highly relevant. What Jose Manuel suggests is that loans in Mexico are unusually small. And in a way, he is right. On a per capita GNI basis, Mexico’s loans are smaller than in any other country.  By contrast, India’s loans are nearly three times larger. This has two potential implications:  first, small microfinance loans put less of a burden on Mexican borrower incomes, and second, their inadequate size encourages clients to borrow from multiple lenders in order to meet their requirements. And yet, I find that both implications are incorrect and that multiple borrowing levels in Mexico continue to point to a very large bubble.  more →

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