Volume 44, Number 172,
January-March 2013

Commercial Bank Financing for Micro, Small and Medium-Sized Enterprises in Mexico, Rodrigo Fenton and Ramón Padilla, United Nations, Mexico, 2012

The objective of the work reviewed here is to study the strategy for granting credit to micro, small and medium-sized enterprises (msmes) from commercial banks in Mexico and to analyze the factors that encourage or impede this process. The book is divided into five chapters.

The first highlights the relationship between developing the financial system and economic growth with its crucial role in reducing costs for transaction and information, and in the efficient allocation of resources. Specialized literature identifies five main functions of the financial system as a motor of productive development, as follows: reducing risk by coverage, commerce and diversification; information gathering and resource allocation; mobilization and grouping of savers who want to invest their resources; cost reduction when gathering the information needed for credit contracts and monitoring companies once they have been granted financing; and facilitating productive specialization by reducing transaction costs.

The percentage of economic growth has an effect on system development; greater economic growth results in a more developed system. There also might be a third variable that provokes both development of the financial system and economic growth. There are eight factors potentially associated with how much credit is offered to msmes: a) macroeconomic conditions, b) transaction costs, c) asymmetrical information, d) guarantee systems, e) origin of capital, f) protection for creditors, g) cultural and regulatory factors and h) historical factors.

The second chapter discusses the research methodology; an approach focusing on credit supply was used, consulting the banks as to how they make loans to companies. The information for the study was collected through a questionnaire and an interview with commercial banks that grant credit to msmes.

The third chapter recognizes the heterogeneous nature of commercial banking in Mexico when granting credits to msmes. Of the more than forty banks in the country, only sixteen have credit activities oriented towards this type of company; the most common credit products are revolving lines of credit and working capital. The banks can be classified into three categories based on how they offer credit. First, there are large banks whose strategy is to serve the greatest number of clients through their network of branches or with specialized promoters. Second, there are niche banks or regional banks that look for a close relationship (relationship lending) to attract clients. Finally, there are banks that are not specialized in msmes but still offer them credit as a service derived from their traditional credit lines. Commercial banks concentrate their loans on small and medium-sized companies, while micro-enterprises receive less financing.

The fourth chapter analyzes the factors associated with the credit supply for msmes. The majority of banks interviewed consider the performance of macroeconomic variables when granting credit to msmes. These variables are used to fix growth goals for fundraising and placement, as well as to evaluate risk and assign amounts for portfolios.

Just over half of banks have estimates of the transaction costs involved in granting credit to msmes. These transaction costs are not a barrier for banks with a large portfolio in this sector, but they are for banks with a smaller portfolio.

To deal with asymmetrical information, banks research the behavior of both the business and its owner using checking operations, credit cards and payroll. They also use information from credit organizations as an indicator of behavior and payment capacity. Insufficient or deficient information is a barrier that limits the granting of credit to msmes.

Government guarantees mainly appear in large banks; recently government guarantees have backed credits granted to msmes. Banks also accept other guarantees as insurance. In general, government guarantees and collateral cover risks.

Foreign capital banks grant the majority of credit to msmes. In Mexico, the origin of capital is not a barrier for the credit supply, as foreign banks and Mexican banks use similar strategies.

The complex protection provided to creditors discourages banks from granting financing. Commercial banks have a low recovery rate due to the lack of government guarantees to facilitate the process. The legal recovery system is a barrier for the credit supply to msmes as the processes are slow, complicated and costly when legal means are required.

Among other cultural and regulatory factors, the informal nature of the system is an element of high impact when deciding whether or not to grant credit to msmes. This behavior is associated with non-systematic accounting processes, a lack of tax reports and outdated financial statements. Other factors include the complexity of tax legislation, insecurity, the non-payment culture, low financial culture and the low level of professionalization among msmes.

Throughout the last three decades, Mexico has undergone profound historical transformations, which have led to significant changes in the commercial banking system. The business model has changed as well as the personnel in charge of serving these companies, and this hurts the credit supply for msmes.

The last chapter provides conclusions regarding the results of the analysis of the commercial banking system’s business strategy and the factors that affect the granting of credit to msmes in Mexico.

In summary, this work is a vital contribution to analyzing the Mexican financial system; the information presented here could orient strategies to encourage commercial banks to increase their participation in productive development.

Karol Solis
Universidad Michoacana de San Nicolás de Hidalgo, Mexico
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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: June 27th, 2018.
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