e-MFP, 31 October 2014
I’ve been poring over the data collected by the Angelucci, Karlan & Zinman study of Compartamos clients. To recap from my previous blog, with an average monthly loan payment of 2,100 for the loans in the study (and for Mexican MFIs generally), the figure of 1,572 pesos as the average client income poses a seemingly impossible debt-to-income ratio of 130%.
The immediate question is whether the income figure is reliable. It does seem extremely low, putting the clients below the 3rd income percentile in the country. Can we get anything more from that data? more →
e-MFP, 24 October 2014
This is part 3 of a 3-part installment from my brief visit to Mexico in October 2014. Read parts one and two.
The biggest mystery about Mexico is understanding the numbers. They just don’t quite seem to add up. And that’s what was dogging me throughout the visit, including the two days spent in Mexico City talking to various actors in the sector.
I was lucky – it just so happened that ProDesarrollo was releasing its 2013-14 Sector Benchmarking, and I managed to get myself invited to the event. A great opportunity to network with many actors in the sector at once. I also got to see the presentation of the market figures. At the outset of the trip, I laid out several hypotheses. It seems to me that there are really only two that matter more than all the rest: 1) the number of unique clients and number of loans they hold, and 2) the profile of the MFI clients on which the market rests. more →
e-MFP, 24 October 2014
This is part 2 of a 3-part installment from my brief visit to Mexico in October 2014. See: parts one and three.
My first stop in Mexico was a place I first heard about nearly two years ago: Chiapas. The state is in many ways one of the centers of Mexican microfinance. According to ProDesarrollo’s 2013-14 Benchmarking, Chiapas is tied with much larger Veracruz for the largest number of the network’s members (32). The number of MFI branches per population is nearly double the national average. It’s also Mexico’s least developed state.
In all, I spent about 22 hours in Chiapas. But even that paltry amount of time can prove revealing. more →
e-MFP, 6 October 2014
This is part 1 of a 3-part installment from my brief visit to Mexico in October 2014. See: parts two and three.
I’m on my way to Mexico, for what I hope to be the start of a deeper exploration of overindebtedness in the country. Data analysis an ocean away can be revealing, but there’s nothing like seeing the numbers come alive when visiting the field. First stop: Tapachula, Chiapas.
Every analyst has his or her own approach. For me, I find it best to come with a number of hypotheses and then see to what extent reality reflects those initial preconceptions. I like to keep an open mind and am always willing to change my view. Still, having a pre-existing framework in mind helps structure field observations, especially when time is short.
I’ve already shared my thoughts on multiple borrowing and overindebtedness in Mexico, but those go back a couple of months. Since then, I’ve spent a fair bit of time digging deeper into the data and comparing Mexico to what I’ve seen elsewhere (including finalizing a study of Moroccan MFIs during 2008-13, including how they dealt with substantial multiple borrowing during 2009). Based on this and earlier work, I’m putting down some of my hypotheses below. more →
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 →
e-MFP, 2 Jul 2012
Last week, as its football team was preparing for its match with the Netherlands, Mexico hosted the International Forum for Financial Inclusion. It was an important event, opened by the President of Mexico, Enrique Peña Nieto, and attended by such notables as Christine Lagarde. By all accounts, it was an excellent meeting where representatives of financial regulators from around the world shared their experiences and strategies to promote financial inclusion in their countries.
But one thing stood out. During his speech, Jaime González Aguade, President of the Comisión Nacional Bancaria y de Valores (agency in charge of regulating Mexico’s financial sector) stated:
I have no reason to dispute his assertion. But one has to wonder — how should this leadership be reconciled with the high rates of overindebtedness among the country’s microfinance clients? And when the bubble bursts, might it not undermine the very efforts to expand financial inclusion that Mexico is promoting?
e-MFP, 19 Jun 2014
You know the game of musical chairs: players sit on chairs arranged in a circle. The music starts and the players start circling – dancing, running – while chairs are progressively removed. Then the music stops and chaos erupts as the players seek to find a place to sit.
In Mexico, the number of chairs remaining is few indeed, even as the MFIs continue to dance. The recently published study by the Microfinance CEO Working Group has shown just few chairs are left. More →
e-MFP, 30 May 2014
Or the more things change, the more they stay the same… Sometimes it seems as though there is no shortage of proverbs when it comes to looking at the seemingly inevitable credit business cycle. In my last blog I took a look at the unprecedented stability of the US banking sector during the 50 years following the Great Depression. Recent news from Mexico – in the form of a study by the Microfinance CEO Working Group – shows just how far away we’re from that world.
There’s much to say about that study, and also the Working Group itself, which deserves credit for the willingness to publicly share the data, no matter how distressing the findings might be. And yes, they are distressing. More →
Financial Access Initiative, 5 June 2013
My last two posts described the high risk of a repayment crisis in Chiapas, Mexico, and its potentially devastating consequences to the microfinance sector around the world. But here is the good news: thus far there is no crisis, and one could still be avoided.
I have argued before that DFIs and other funders could leverage Smart Certification to enforce client protection practices and thus avoid the kind of overlending that’s happening in Chiapas. However, that prescription alone would not work in Mexico, mainly because a large number of Mexican MFIs are independent of foreign funding, and there are many other lenders active in the same space, including consumer finance companies and large retailers that provide credit.
The answer to avoiding a repayment crisis in Mexico will thus require government action, most likely new legislation that would bring all lenders under a common set of regulatory standards. Specifically, there are two key areas that must be addressed:
Financial Access Initiative, 27 March 2013
A month ago I wrote a post singling out the Mexican state of Chiapas as a potential site of a coming repayment crisis. No, this is not a follow-up announcing that it has begun, nor am I rooting for one to start. In my next post, I will review the options that the Mexican microfinance sector has to avoid it, and what the global microfinance community can do to help. But for now, let’s dig a bit deeper into what a Chiapas crisis might mean, and why I continue to focus on Mexico, as opposed to the broader issue of excessive credit and over-indebtedness.
Let’s be blunt: not all countries are created equal. Some remember my warning three years ago about the danger of a credit crisis in Andhra Pradesh. Back then I compared a possible crisis in India to the crisis in Bolivia a decade before: “India is no Bolivia – if the bubble bursts there, the entire global microfinance sector will find itself reeling.” Well, Mexico is no India.
A full-blown crisis in Mexico would be unlike anything we’ve seen, easily surpassing the negative impact of Andhra Pradesh. more →