Financial Inclusion Report

2
June 2010

JUNE 2010

National Banking and Securities Commission President Guillermo Babatz Torres

Vice-presidency of Regulatory Policies General Direction on Access to Financial Services Carlos Serrano Herrera, Ral Hernndez Coss, Alejandro Vzquez Zavala, Luis Trevio Garza, Laura Karina Ramos Torres, Ana Beln Rodrguez Quintana, Fernando Licona Herrera, Ana Laura Medina Prez.

Creativity and Design Natalia Lpez Daz, Noem Tecanhuey Snchez, Bernab Zamora Garca, Ricardo Gmez Ortega

Insurgentes Sur 1971, Col. Guadalupe Inn Del. lvaro Obregn; Mxico, D. F. 0102 Mxico reporteinclusionfinanciera@cnbv.gob.mx

A KNOWLEDGEMENTS
The responsible team for developing the report wishes to express its gratitude to the following institutions and people. To the Alliance for Financial Inclusion (AFI), for the support in the dissemination of this report through its policymakers network, to The Consultative Group to Assist the Poor (CGAP) for the comments in the section of consumer protection, to the World Council of Credit Unions (WOCCU), to Mexicos Central Bank, to the National Commission for the Defense of Financial Institution Users (CONDUSEF), To Institute for Mexicans Abroad (IME) and to the National Institute on Statistics and Geography (INEGI) for their contributions in the elaboration of different sections of this Financial Inclusion report. To the company Promocin y Operacin, S.A de C.V. (PROSA), to Mexicos Bankers Association (ABM), the Mexican Association of Internet (AMIPCI), to the National Savings and Financial Services Bank, S.N.C (BANSEFI), E-Global, Financiera Rural, PRODESARROLLO and PRONAFIM. This publication would not have been possible without the help of our colleagues: Jorge Alfaro, Mireya Almazn, Salvador Bonilla Leal, Diego Britos Chiaramello, Annie Carrillo Soubic, Jess David Chvez Ugalde, Daniel Chiquiar Cikurel, Carlos Cuevas, Denise Dias, Mara del Carmen Daz Amador, Carlos Garca de Alba Zepeda, Celso Garrido, Alfred Hannig, Megan Havey, Jorge Herrera Hernndez, Arturo Luna Canales, Ignacio Mas, Rafael Mazer, Kate Mcgee, Ricardo Medina lvarez, Alberto Mendoza Hernndez, Luis Robles Miaja, Elisabeth Rhyne, Yoali Ruz Rocha, Roberto Snchez Cullar, Jos Santiago Cruz, Francisco Solis Robleda, Flavio Torres Njera, Francisco Zago, Gabriela Zapata Alvarez and, particulary, Thorsten Beck. Finally to the colleagues of the Comimssion involved in reviewing the report and providing comments: Jess Bentez Martnez, Benjamn Bernal Daz, Yerom Castro Fritz, Alan Elizondo Flores, Jorge Fabela Vias, Viviana Garza Salazar, Anglica Gonzlez Saravia Cos, Carlos Lpez-Moctezuma Jassan, Lucio Lpez Rincn, Daro Luna Pl, Carlos Marmolejo Trujillo, Patricia Medina Barrera, Francisco Mier Sainz Trapaga, Arcelia Olea Leyva, Leticia Riquelme Arriola, Hctor Rodrguez Larrondo, Brenda Samaniego de la Parra, Rodrigo Snchez Arriola Luna, Eduardo Vargas Chavarra, Sirenia Vzquez Bez.

C ONTENTS
PRESENTATION .... p.6 METHODOLOGICAL NOTE..... p.8 INTRODUCTION.... p.9 CHAPTER 1: CONCEPTUAL FRAMEWORK OF FINANCIAL INCLUSION.... p.17 CHAPTER 2: MACROECONOMIC INDICATORS.... p.39 CHAPTER 3: ACCESS INDICATORS. p.57 CHAPTER 4: USAGE INDICATORS... p.83 CHAPTER 5: FINANCIAL EDUCATION AND CONSUMER PROTECTION........ p.123 CHAPTER 6: FINANCIAL INCLUSION BARRIERS.. p.133 REFERENCES. p.140

P RESENTATION
As in the majority of countries, in Mexico, it is the banking sector who distinguishes itself because of the dimension of its participation in the supply of financial services. However, it is not the only one that provides financial services to the population. There are several legal figures that allow different institutions to develop business strategies for attending various segments of the population with financial services and specific products. Nevertheless, the promotion of greater Financial Inclusion among all the segments of the population requires the sum of all the financial agents. For this reason, by using the conceptual framework of indicators about Financial Inclusion presented in the last report, this one adds to the statistic information of the countrys banking sector which corresponds to Popular Savings and Loans Institutions (PSLI), including the Cooperatives of Savings and Popular Credit, the SOFIPOS, the Credit Unions and the SOFOLES.

Both banks and PSLI share the challenge of designing financial products that meet the needs of each segment of the countrys population, for which they require new models of business that allow the interaction of different Financial Institutions regardless of the legal figures they use. A way to develop these new models of business may be by seeking to maximize the potential that commercial networks offer to financial institutions. Therefore, the new channels of distribution of financial services of banking agents and mobile banking agents provide a unique opportunity to explore alliances that contribute to the solution of the lack of attention in large areas of our country. In this process of innovation in the supply of financial services, the Commission renews its commitment of adequating the regulation to facilitate commercial alliances. I want to acknowledge the effort of Banco de Mxico and Condusef for providing the information used in the elaboration of this report. Likewise, the CNBV and Mexicos Bankers Association have been working together to improve the quality of the information regarding Financial Inclusion.

Guillermo Babatz Torres President National Banking and Securities Commission

M ETHODOLOGICAL N OTE
The information presented in this report on branches, ATMs and financial products was obtained from regulatory reports provided by supervised institutions to the CNBV, particularly from the regulatory report 24 (R.24). For Chapter 2 (Macroeconomic indicators) the figures were obtained from various sources and could be subject to revisions and further changes. The information on point of sale terminals comes from Promocin y Operacin S. A. de C. V. (PROSA). The information related with the PSLI was provided to the CNBV by the Cooperative Societies and the Popular Societies. The analysis of Cooperatives is made to those Cooperative Societies with an operating level of I to IV that have obtained authorization from the CNBV. For the geographical information of the municipalities it have been used the databases of the National Institute on Statistics and Geography (INEGI) and the National Institute for the Federalism and the Municipal Development (INAFED). The estimated population comes from the National Population Council (CONAPO). The analysis of family remittances was performed with information of Mexicos Central Bank and the Institute for Mexicans Abroad (IME). The statistics of Internet banking and electronic commerce come from the Mexican Association of Internet (AMIPCI) and the Federal Communications Commission (COFETEL). The information on financial education and consumer protection was given by the National Commission for the Defense of Financial Service Users (CONDUSEF). Chapter 7 (Financial Service Access Analysis: Regional Maps) was done using the IRIS 4.1 tool, developed by the Edition and Applications of Geographic Information Systems of the National Institute on Statistics and Geography (INEGI). The data used to make international comparisons come from the Survey of Access to Financial Services, conducted by the International Monetary Fund (IMF).

I NTRODUCTION
Policymakers are aware of the importance of basing their actions on statistical evidence from the design and implementation to their monitoring and evaluation. In the same way it is accepted that, if all actors interacting in the financial sector have better statistical information, it is possible that these develop business models that address the challenges of the sector, resulting in better products and services for the population.

Objectives of the report This report seeks to be a tool to consolidate information, adapting measurement methodologies and promoting the discussion among the actors of public and private sectors on subjects related to Financial Inclusion. This report is part of the projects implemented by the CNBV to improve the information and statistics regarding Financial Inclusion in Mexico1. Chart A. Initiatives for the measurement of access and usage of financial services
Individuals
National Survey to Households about Financial Services Usage Measurement of Financial Capacities to improve the quality of products Coordinated effort between CNBV and Condusef with technical assistance from the World Bank. Focus groups and surveys for each geographic region of the country.

Corporate Entities
National Survey to Enterprises about Competitiveness and Access and Usage of Financial Services (ENE) Joint initiative SHCP, CNBV, Mexicos Central Bank and BID Representative sample at a national level and by firm size stratum

Demand

Coordinated effort between SHCP, CVBN, Mexicos Central Bank, SAGARFA, SEDESOL, BANSEFI Methodological consistency with surveys in other countries Research conducted by INEGI

Financial Inclusion Report

Statistic studies with Banks about SMBs Financing SHCP, CNBV and the United Nations Economic Council for Latin America (CEPAL) Identify the barriers that prevent granting funding to SMBs

Supply

Data from the offer obtained from regulatory reports issued by the institutions. Information dissemination tools from the Federal Government about the components of Financial Inclusion Two annual Reports and quarterly database update (March and September)

Source: CNBV

Statistical information and indicators development seek to provide tools for the institutions and users of the Mexican financial system, to promote transparency in the sector and strengthen decision-making with appropriate information. Its conception comes from three premises: 1) providing more information to financial agents can foster the development of financial products and services, 2) include the use of indicators can help identify barriers limiting the development of an inclusive financial system and alert operators of potential business opportunities, and 3) provide a better analysis of the financial environment and its participants promotes healthy competition, thus enabling it to improve financial services for the benefit of users of the system.
1

Which include household surveys, focus groups, companies and focus groups between suppliers and demanders of financial services.

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The reports will be published twice a year, and they seek to increase their content as they develop new sources of information for developing indicators and adding categories on Financial Inclusion Components. The database, which supports the statistics in each report, is updated on a quarterly basis as well as the indicators2. Chart B. Release Cycle of Financial Inclusion Report (FIR)
March June September December March

Database update

Database update

Report and database update Commercial Banks State-owned Banks

Report and database update Popular Savings & Loans Institutions (PSLI)

Report and database update Banking Agents

Source: CNBV

Below it is specified the criteria and other considerations taken into account when preparing the report and the manner to perform the analysis contained therein, as well as what is expected to improve in the subsequent reports. Financial institutions analyzed The financial intermediaries in Mexico are grouped for their analysis in four groups, based on the classification used by CGAP3. The first category includes regulated institutions and the Commercial Banking, the State-owned Banking, the Cooperatives and the Savings and Loans Cooperative Societies, and Microfinance entities. The Popular Financial Companies (SOFIPOs), the Limited Purpose Financial Companies (SOFOLES) and the Credit Unions are included as Microfinance entities. For purposes of this report where reference is made to PSLI, it refers to both: Cooperatives and Microfinance; where reference is made to the bank, it includes both Commercial Banking and State-owned Banking (See Chart C).
2

The database of Financial Inclusion is for public use and can be accessed at the website of the CNBV: www.cnbv.gob.mx. 3 Financial Access 2009: Measuring Access to Financial Services around the world, CGAP.

Chart C. Map of regulated financial institutions

Commercial Banking State-owned Banking Cooperatives Microfinance

Savings and Loans Cooperative Societies

Credit Unions

Sofipos

Sofoles

Source: CNBV based on reports made by CGAP

Geographical level of analysis The information presented in this report is aggregated at national, regional, state and municipal level. However, the report uses the municipality as a geographical base of analysis. In Mexico the federative entities take as a basis for its territorial division and its political and administrative organization, the Free Municipality4. The total number of municipalities in the country is 2,456 (considering the 16 Mexicos City political delegations as municipalities) and these are profoundly diverse and heterogeneous. The report characterizes the municipalities in six categories described in Chart D. Chart D. Characteristics of the municipalities in Mexico
The classification most commonly used for municipalities in Mexico is rural and urban. Because there is no strict definition of these concepts, the CNBV has identified six categories of Municipalities with the purpose of conducting a specific analysis about them (three rural and three urban). Rural Municipalities: Rural Municipalities are characterized by a very small population and high population dispersion. They maintain primary economic activities as agriculture, livestock, fisheries and mining. They present lack of infrastructure and migration trends to cities and other municipalities, which are better equipped and have a wider range of economic activities, with the intention of getting better employment opportunities and income. 1) Rural Municipalities: population between 1 and 5,000 inhabitants. 2) Transition Municipalities: population between 5,001 and 15,000 inhabitants. 3) Semi-urban Municipalities: population between 15,001 and 50,000 inhabitants. Urban Municipalities: Urban Municipalities are characterized for integrating a strong economic activity into their territory, deposited in highly developed businesses, as well as small and medium industries that encourage the development, trade and growth of industry service providers. The infrastructure developed in these is quite broad and they maintain a continuous labor flow. 1) Urban municipalities: population between 50,001 and 300,000 inhabitants. 2) Semi-metropolis municipalities: population between 300,001 and 1,000,000 inhabitants. 3) Metropolis municipalities: population greater than 1,000,000 inhabitants.

Source: CNBV
4

Article 115 of Mexicos Political Constitution.

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The Municipalities in turn can be composed by localities. A locality can be defined as a group whose characteristics are so defined that it distinguishes from others (also known as an inhabited place or settlement), where residents live in neighborhoods with a series of independent rooms and have a name and status locally recognized5. There are about 292.000 locations in Mexico according to the criteria of INEGI.

Challenges in the geographic identification of the financial services infrastructure For financial institutions it has been complex to correctly identify the location of their own branches, point of sale terminals and ATMs in the record of municipalities elaborated by INEGI. For months, work has been done in a coordinated manner to correct location errors arising from homonyms between names of locations and municipalities. Given the difficulty in identifying the financial infrastructure in the right place at the municipal level, it is now a very complicated request for the information to be based on the local level. Once it possible to have the quality sought at a municipal level we might consider adding the local level. In the case of point of sale terminals, regulatory reports only request the information at a state level. However, The Mexicos Bankers Association in coordination with the company PROSA was able to identify the location at the municipal level of most POS terminals. The register kept by the banking institutions of the location of POS terminals is based on zip codes in the country. However, it is not possible to use and operate zip codes to place the financial infrastructure at the municipal level because a code can contain more than one municipality or sometimes there are cases where a municipality has more than one zip code. For the elaboration of statistic information about use and access to financial services, it is important that the municipality is accepted by the various actors as the geographical base of analysis. Such base, apart from maintaining a statistical standard defined by INEGI, allows crossing information with relative indicators about migration, demographic distribution and infrastructure. It is striking the fact that even the surface of some municipalities is inconsistent in the database of the Federal Government. When adding the surface of the registered municipalities in the database of the National Institute for Federalism and Municipal Development (INAFED, as the Mexican abbreviation) from the Home Secretary the country has 1,999,540 km2, while the surface of the territory according to INEGI is 1,959,248 km2. There are still records in the same database about municipalities that are considered of recent creation and that dont have a surface6. Denominators for indicators and reference to adults
5

http://www2.ingei.gob.mx/estestint/ficha.asp?idf=956. In this category are the fishing villages, mining camps, ranches, farms, markets, villages, towns, cities and other population groups. 6 http://www.inafed.gob.mx.

The report contains different denominators in order to obtain figures that are easy to understand for the reader, (10,000 adults in access indicators and 10,000 adults in usage indicators)7. The term adults is used in place of population because of the universe of potential users is limited to people who can legally use financial services and who have financial needs associated with products that satisfy them. While in Mexico, coming of age begins at 18, the international standard implemented is the one used in the database "World Development Indicators (WDI) from the World Bank's 15 years. Using these criteria at the moment allows us to maintain consistency with current international efforts to measure Financial Inclusion8. Saving entities and popular credit9 Cooperative Societies or Savings Accounts are a form of social organization composed of people with common interests under the principles of solidarity, effort and mutual aid, in order to satisfy economic needs of production, distribution and consumption of goods and services. Such people are associated with two main objectives: to save and lend to each other money, with rates of interest both for those who save and those who ask for a loan. These two financial transactions are made between the partners of the institution. When someone enters a Savings Account it does so as a partner figure of the same and shares the risk in operations, that is, if some members fail to pay, it will affect the preferential rates and even the viability of the account. The Savings Account does not have the savings insurance protection such as the IPAB handles, but the authorized Savings Account should have a private protection fund to guarantee the savers money. The Savings Accounts constitute, in some cases, large organizations with a broad portfolio of partners. The Popular Financial Societies (SOFIPOS) are institutions that contribute to the existence of various options for people that may have access to savings and credit, fully enabling the participation of private initiative in the activity of savings and popular credit. In Credit Unions, the material scope of operation given to them incorporates not only those traditional credit operations they have offered their partners for some time now, but also those others that, because of various circumstances in the economic and business environment in Mexico, are increasingly exploited by businessmen. The new legal framework applicable to Credit Unions allows them to extend credit to their partners, or give their warranty or guarantee
7

For example, accounts per 1,000 adults fluctuating between 20 and 4000. A denominator larger or smaller than these figures would be more difficult to read and interpret. The same applies to branches and other distribution channels for financial services. 8 http://data.worldbank.org/indicator. 9 Since 2001, with the entry into force of the Law on Savings and popular credit, this sector has been growing significantly. We present several modifications to the Law being the one on August 2009 the most recent one, made with in order to encourage non-regulated institutions to become part of the financial system under an appropriate regulatory framework so as not to block their growth or specific targets. The result has been that many organizations have achieved significant improvements in operational, financial and governance issues. Apart from the fact that all these intermediaries are obliged to arranged their operations through the authorization of the National Bank and Securities Commission (CNBV).

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for the latter to obtain credit from a third party. They also can manage with them lease or financial factoring operations and buying and selling currencies on behalf of their partners.

Report Sections In this second delivery of the report, the conceptual framework for Financial Inclusion is updated (Section 1), with information on recent efforts to integrate the definition of it, the conformation of the working group on measurement techniques, and sponsored by AFI and the initiative of the Group of 20 (G-20). The section concludes with a brief description of the regulation that has developed in the last month in Mexico to promote greater Financial Inclusion10. The indicator set is presented in three categories: macroeconomic indicators (Section 2), access indicators (Section 3), and indicators of use (Section 4). For the first time, the report introduces other categories that support Financial Inclusion, namely: Financial Education and Consumer Protection (Section 5), and it present a proposal of a conceptual framework to develop, in the future, indicators of Financial Inclusion barriers (Section 6). In the future, these components will have their own indicators. Finally, we present an analysis of access to financial services through regional maps (Section 7), which identifies the geography per Municipalities in the five regions of the country according to the National Development Plan, using the branch access indicators and the use of debit card indicator. The report is supplemented with eight Annexes, which serve to support the analysis presented, in addition to providing information regarding the contents of the database. The first six are presented in this report and the last two are included in the CD-ROM attached. Below it is shown the list of Annexes printed in this report: 1) Municipalities catalog 2) Infographics per Federative entity 3) Income and credit products per state 4) Historical trends per state 5) Family Remittances 6) International Comparison of Access Indicators The CD-ROM includes an updated database to the month of March 2009, with detailed information per municipality in the country, in addition to the Annexes: 7) Access Indicators per Municipalities. 8) Indicators of use per Municipalities.
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Banking agents, Mobile Phone Banking agents, Niche banks and payment mediums.

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CONCEPTUAL FRAMEWORK
OF FINANCIAL

INCLUSION
In a very fast way an international consensus begins to grow on the importance of promoting Financial Inclusion, not only for those who are marginated in the financial sector, but also for those who are already part of the financial sector and still dont know how to take advantage of the potential that services and products offer to them.

In recent years, the term Financial Inclusion began to be used by different actors. In various countries, leaders in public policies have begun to create some definitions (See table 1.1)

Table 1.1 International definitions of Financial Inclusion

Institution Central Bank of Brazil Definition Provision of access to financial services designed for the needs of the population.

Central Bank of India

Financial Inclusion is defined as the process of ensuring both access to financial services as well as timely and adequate credit to vulnerable groups, such as weak and low-income groups, in an affordable way. Financial Inclusion means wide access to a portfolio of financial products and services including credit, deposit services, insurance, pensions and payment systems as well as financial education and consumer protection mechanisms. The access and use of a range of financial products and services by the population that, under appropriate regulation, protects the interests of the financial system users and encourages their financial capabilities.

Superintendency of Banking, Insurance and Pension Funds Companies (AFP) of Peru National Banking and Securities Commission (CNBV)

Source: Alliance for Financial Inclusion (AFI). Measurement Working Group of Financial Inclusion

Financial Inclusion Components Despite the efforts to create definitions, those responsible for public policies have concurred, in various countries, on the need to identify the essential elements that distinguish this term and avoid, at this moment, the discussion about what should be the universal definition. For this reason, the idea to develop a conceptual framework has been accepted and every country may determine its own definition of Financial Inclusion in relation to it. Thus, a consensus begins to emerge about what are the components that define the conceptual framework of Financial Inclusion. The access to financial services and the use of financial products and services are the two concepts, with up to date acceptance, as a starting point for a definition of Inclusion. However, the majority agreed on including financial education and consumer protection as additional components. Likewise, some countries promote the incorporation of other concepts like the payment systems and the population welfare as part of the definition of Financial Inclusion.

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While the discussions continue, the development of public policies has been distinguished by actions aimed at promoting the access to financial services. It seems that there is a preference regarding the type of policies that can be implemented to have an impact on the population. The public policies that promote the access to financial services should be supplemented with use promotion policies, in which the regulation sets the necessary incentives for the promotion of financial products and services in relation to the needs of the different segments of the population. Finally, public policies aimed to improve the quality offered by these services complement a cycle, receiving the support of measuring instruments that set the design as a base for those policies, allowing to calculate the impact, and, where appropriate, promote their adaptation. See graph 1.2.

Graph 1.2 Financial Inclusion Curve

Higher number of people included in the financial system

Financial Inclusion Curve

Quality Usage
Increase in financial penetration Better Products

More efficiency

Access

Measurement of Financial Inclusion ( Firms and Individuals)

The Alliance for Financial Inclusion (AFI) The Alliance for Financial Inclusion (AFI) is a network formed by the central banks of some developing countries and other regulatory agencies to share their knowledge and experience in the development and implementation of public policies to promote greater Financial Inclusion. This alliance, officially established on September 2009, focuses on specific areas that offer a significant potential to increase accessibility in the financial services through policies that have been previously tested in other countries. These focus areas are: Banking agents. Enable non-banking agents to offer financial services. Mobile financial services. Increase access to financial services through the mobile technologies. Formalization of micro savings. Facilitate the adoption of new suppliers and products that promote the micro saving. Financial Identity. Facilitate the construction and the use of financial entities for people with a low-income. National banking reforms. Promote the establishment of government institutions that offer financial services to low-income people. Consumer protection. Promote policies that provide consumer protection and an adequate financial education. Measurement of information. Facilitate the increase and improvement of information on Financial Inclusion issues to stimulate the creation of innovative and successful public policies.

Currently AFI has over 50 member countries and its steering committee is constituted by representatives of Mexico, Philippines, Kenya, Thailand, Nigeria and Peru.

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Graph 1.3 The Alliance for Financial Inclusion member countries

Africa
Burkina Faso Burundi Camern Chad Costa de Marfil Gabn Ghana Guinea Guinea Ecuatorial Kenia Madagascar Malaui Namibia Niger Nigeria Repblica Centroafricana Repblica del Congo Ruanda Senegal Sierra Leona Sudfrica Sudn Tanzania Togo Uganda

America
Colombia El Salvador Guatemala Mxico Panam Per

Europa
Bielorrusia

Asia
Afganistn Bangladesh Camboya Filipinas India Indonesia Jordania Malasia Maldivas Pakistn Rusia Sri Lanka Tailandia Yemen

Oceania
Fiji Islas Salomn Samoa Tonga Vanatu

The initiative taken by the Group of Twenty During the G-20 Leadership Summit that took place at the end of June 2010 in Toronto, the importance of the work fulfilled by the Financial Inclusion Experts Group (FIEG) was highlighted. Such group suggested nine Principles for Innovative Financial Inclusion formed by the Access through Innovation Sub-Group (ATISG)11. Table 1.4 The G-20s Principles for Innovative Financial Inclusion
ATISG developed the following nine Principles for a New Financial Inclusion, which were endorsed by Leaders at Summit in Toronto in June 2010. The principles were derived from diagnostic work and the survey developed by CGAP under the leadership of the Alliance for Financial Inclusion. 1. 2. Leadership: Promote a broad-based governmental commitment towards Financial Inclusion with the objective of alleviating poverty. Diversity: Implement public policies focused on promoting a greater competition, that offer marketbased incentives to supply sustainable financial access for the use of a broad range of services at accessible prices (savings, credit, payments and transfers, insurance), as well as to favour the existence in diversity of the service suppliers mentioned. Innovation: Promote technological and institutional innovation as a means to expand the access to and the use of the financial system, which includes facing infrastructure deficiencies. Protection: Foment a comprehensive approach towards the protection of the consumer that recognizes the roles of the government, suppliers and consumers. Empowerment: Develop culture and financial abilities. Cooperation: Create an institutional environment with clear lines of responsibility and coordination inside the government. Foment partnership and direct consultation between the government, the enterprises and other stakeholders. Knowledge: Make use of higher quality data to create politics based on the evidence, to measure its progress and consider the increasing trial and error approach, acceptable for both the regulator and the service provider. Proportionality: Build a policy and regulatory framework proportional to the risks and benefits involved in the different and innovative products and services, which is also based in the understanding of gaps and barriers present in current regulations. Regulatory framework: Reflect the international standards, the national circumstances and favour a competitive environment; it must also consider: A suitable, flexible and risk-based system of Anti-Money Laundering (AML) and of Combating the Financing of Terrorism (CFT). The requirements for the use of agents as costumer interface. A clear regulatory regime for electronically stored value. Market-based incentives that allow as an objective to broaden the interoperability and interconnection. Source: Principles and Report on Innovative Financial Inclusion from the Access through Innovation SubGroup of the G20.
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3. 4. 5. 6.

7.

8.

9.

In the Toronto declaration, the G-20 leaders said: We have developed a series of principles for an innovative Financial Inclusion, which will form the basis for a concrete and pragmatic plan of action to better the access of the economically unprivileged to financial services.

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The countries that are leaders in this subject have developed national visions and strategies in Financial Inclusion as a part of their extended plans for economic development. These policy supervisors have also shown their disposition in exploring new implements to better the access to financial services, maintaining the stability and strength of the financial systems.

The access to financial services and their measurement

International Monetary Fund database12

The International Monetary Funds Financial Service Access project is focused on the annual collection of geographic and demographic information about the access to basic financial services around the world13. This is carried out through periodic interviews applied to the broad net of IMF country members that integrate the International Financial Statistics (IFS) basis. The principal access indicators, annually collected, are publicly spread and they allow:

To monitor the effectiveness of the policies aimed to increase the access to financial services throughout time. To promote investigation and analysis to strengthen the understanding of basics and implications with regard to the financial services access and use.

At the end of July 2010, the IMF published the data base that shows the results obtained in its first annual interview (Interview about Financial Service Access), which measured the efficiency of such services in 138 countries, for a period of six years (2004-2009). The most important indicators that resulted from the survey are in the following table.

12 13

http://fas.imf.org/ This project was initially financed by the Netherland government and it complements the work fulfilled by the United Nations and the World Bank in the United Nations Consulting Group context about the Financial Inclusion sectors, where the IMF is represented.

Table 1.5 Indicators reported in the Survey of Access to Financial Services of FMI

Usage of Financial Services

Number of providers of Commercial Banking per 1,000 adults Outstanding loans of Commercial Banking (% of GDP) Number of depositors of Commercial Banking per 1,000 adults Number of depositors of Commercial Banking per 1,000 adults

Access to Financial Services

Number of bank branches per 1,000 km 2 Number of bank branches per 10,000 adults 4 Number of automated teller machines (ATMs) per 1,000 km2 Number of automated teller machines (ATMs) per 10,000 adults

Source: Survey of Access to Financial Services, FMI Financial Inclusion Experts Group.14

In spite of the importance of the information obtained by the interviews, it is necessary to clarify that the data base presents some limitations, as from the total number of interviewed countries, approximately 15% did not present the most recent data in reference to bank branches and 24% did not report information about ATMs. As for use indicators, the fact that many countries have not provided information is comprehensible because of the existing difficulty to measure these variables, especially in the least developed countries. For this reason, in the present report, when showing international comparisons, only the access indicators will be employed and, in the future, once the coverage of the mentioned data base is broadened, it will be possible to carry out comparisons that cover a greater amount of indicators. Graph 1.6 Percentage of countries that provided information to FMI Banking branches
15%

ATM

24% 76%

85%

Data reported

No data reported

Data reported

No data reported

Source: Survey of Access to Financial Services, FMI

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For the purpose of this report, the indicators of the number of bank branches were taken in relation to 10,000 adults and not 100,000 as it was originally published in the IMF database.

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On the other hand, the role assumed by the countries affiliated to the AFI during the database collection in this project becomes relevant, as they reported a greater amount of information in comparison with other countries like France, Germany and the United Kingdom. (See Annex 7 with information about the associate countries, including Mexico).

Table 1.7 The Financial Inclusion Data Working Group from AFI
The Financial Inclusion Data Working Group (FIDWG) was created on June 2010 in Kuala Lumpur during a forum organized by the AFI and the Central Bank of Malaysia. In it, 26 participants responsible for public policies shared their broad experience in the compilation of information about Financial Inclusion. Such group centered itself in the establishment of certain bases about the components of this compilation, as well as determining the way in which such initiatives from its members on compiling relevant data will be supported. In the future, this group will broaden the debates so that a greater number of countries, AFI members, may expose their ideas and experiences, promoting better feedback. The CNBV presides over this group.
Source: AFI

Mexicos position in the access to financial services15 From an international perspective, it is complex to analyze the precise position that Mexico occupies in a matter of financial service access, especially when many countries did not report data that would allow a much thorough comparative. However, with the objective of having a better dimension of Mexicos position in relation to the countries interviewed by the IMF, such countries were organized in four principal groups where Mexico participates because of economic or geographic matters. These groups are: the Organization for Economic Co-operation and Development, the Group of 20 (G-20), American Continent and Members of the Alliance for Financial Inclusion (AFI)16. Further on, a comparative indicating the number of branches for every 10,000 adults for each one of the four groups previously mentioned.

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This effort of international comparison was initiated by The Consultative Group to Assist the Poor (CGAP). Some countries that integrate these groups do not show in the graphs due to the fact that they were not included in the IMF interview.

Graph 1.8 Comparative of Mexico with other countries in the number of bank branches for every 10,000 adults7 OCDE17
Portugal Italy Poland Denmark
Greece Spain United States

G-20
8.2 6.8 4.6
4.6 4.1 3.9 Canada 2.4 1.8 Italy

6.8

United States Australia

3.6 3.2

3.6 3.6 3.5 3.2 2.5

2.4 2.3 1.9 Brazil Argentina 1.4 1.3

New Zealand Ireland Australia Holland

Canada Czech Republic Republic of Korea

Turkey Mexico

1.5

Japan India
Saudi Arabia

1.2 1.1
0.9

Hungary Turkey Mexico Finland Japan

Austria Norway Luxemburg

1.8 1.8 1.5 1.4

1.2 1.2 0.8

South Africa Indonesia

Russia n.d n.d

0.8 0.7

n.d n.d n.d n.d n.d

n.d n.d n.d

Switzerland Iceland Slovakia England

France Belgium Germay

England France
China Republic of Korea

n.d
n.d n.d

17

The countries that did not report data for these indicators are shown with the inscription n.d.

26

27

AFI
Guatemala Tonga Jordan Maldives Mexico Thailand Malaysia India The Solomon Islands Pakistan South Africa Indonesia Namibia Philippines Peru Bangladesh Ghana Equatorial Guinea Gabon Kenya Togo Cambodia Belarus Sierra Leone Rwanda Yemen Tanzania Magadascar Afghanistan Cameroun Chad Russia Uganda

American Continent
3.6 2.2 1.8 1.8 1.5
Monsterrat 10.7 8.9

Anguilla Sn. Kitrs y Nevis

Granada 4

4.9

1.1 1.1 1.1 0.9 0.9 0.8 0.8 0.7 0.7 0.7 0.7 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.2 n.d n.d n.d n.d n.d n.d n.d n.d

United States
Guatemala Antigua y Barbuda

3.6 3.6
2.9

Belize
Canada

2.5
2.4

Sta. Lucia Sn. Vicente y las Granadinas

Chile

2.3 2
1.7

Dominica
Mexico

1.6 1.5
1.4

Brazil Uruguay
Argentina

n.d
n.d

Peru Jamaica
Guyana

n.d n.d
n.d

Haiti
Bahamas

n.d
n.d n.d

Costa Rica

Source: Survey of Access to Financial Services, FMI

Even if Mexico presents certain deficiencies when comparing it to more industrialized countries, it is meaningful to mention that it is placed in important positions in relation to the number of branches for every 10,000 adults in comparison to some developing countries as, for example, Brazil, Turkey, Argentina, South Africa or India. This clearly shows the effort made by the financial institutions, as well as the broad field of action for the design of public and regulatory policies that allow the extension or limitation of the access channels to financial services.

New Regulation in Mexico to promote greater Financial Inclusion The Federal Government, with the purpose of encouraging the inclusive efficiency and development in the Mexican Financial System (SFM, in the Spanish abbreviation), has designed concrete actions that impact different components of Financial Inclusion. Through some of the most outstanding actions, new regulations for Banking Agents, Mobile Phone Banking Agents, and Niche Banks and Payment Means (switches)18 may be identified. Banking Agents A banking agent is a new figure promoted by the Federal Government to incentive greater Financial Inclusion, through the increase of distribution spots of financial services. The banking agents represent a more accessible alternative for the user as a result of its high penetration and lower costs, in relation to those who represent the traditional bank branches. The banking agent is a third party that establishes relationships or business links with a credit institution, with the objective of offering, in the name and account of the former, financial services to its clients. An example is the commercial establishments empowered to offer financial services provided by the bank19. According to the regulation established for such an effect, a person may become a banking agent that, by means of the financial institution, demonstrates his experience and technical capacity to the regulatory board, once the requirements on the following table 1.9 are fulfilled. Table 1.9 Requirements for banking agents
Who can be a correspondent?
Corporate entities or individuals with enterprise activity With a permanent address With a particularly qualified kind of business With the necessary infrastructure to fulfil its operations With the certified staff to operate technological mechanisms With an acceptable business and credit record Without a criminal history (felonies or frauds)
Source: CNBV

18

Other initiatives, like the simplified regime for an opening account, will be described in future reports. The regulation that corresponds to the hiring of third party services or commissions appears on the XI th chapter of the Banking Act published in the Official Gazette of the Federal Government, December 2nd 2008.
19

28

29

The banking agents act as a counter between the financial institution and the costumer, however the client-correspondent correspondent-bank transactions are fulfilled through real time charge and payment operations, in the correspondent accounts in accordance with the operations that are taking place. It is important to remark that, at all times, the financial institution is the one responsible for all the operations of the costumer, fulfilled through his banking agents. The allowed operations are described in table 1.10.

Table 1.10 Allowed operations

Operations charged to the banking agent
Services payed in cash, cards and checks of the institution Casho or check depostis from the institution Credit payment by cash, cards or checks from any institution Payment system circulation (pre-payed cards)

Operations with deposit to the correspondent

Cash withdrawal

Other operations
Account balance and movement consultation Funds transference for the payment at bank branches of the same institutions or at banking agents (Remittance)

Check payment from

Source: CNBV

All the operations must be fulfilled in real time and account for authentification factors, which allow the verification of the identity of both the costumer and the banking agent. In addition to the electronical registry of all operations, a receipt of the operation must be generated for the costumer.

Table 1.11 Summary requirements by type of operation

Technological Requirements Operation
On line Payment for services Yes Yes No Yes Yes Yes Yes Yes Operator Identification Yes Yes Yes Yes Yes Yes Yes Yes Equipment Identification Yes Yes Yes Yes Yes Yes Yes Yes Client authentication 1 1 1 1 2 2 1 2 Generate electronic record Yes Yes Yes Yes Yes Yes Yes Yes Generate proof Yes Yes Yes Yes Yes Yes Yes Yes

Limits on Operations
Customer limits Without limit 10,000 UDIS daily Banking agent limits Without limit

Charge

Deposits Loan repayments Payment methods Cash withdrawal Check payment Check balances Funds transfer

25% of monthly average flow of the last 12 Without limit Without limit Without limit 1,500 UDIS daily 1,500 UDIS daily Without limit Without limit Without limit Without limit Without limit Without limit Without limit

Source: CNBV

Banking agents administrators According to the existent interaction between the banking institution and its banking agents, the business model may be fulfilled in a direct or indirect form, in other words, it is possible for the bank to delegate the hiring and the administration of its banking agents to a solicitor entity. For this purpose, the regulation permits the Banking Agents Administrator figure (see table 1.12).

30

Others

Payment

31

Table 1.12 Functions of a Banking Agent Administrator

Possible functions of a banking agent administrator

Identify and select suitable banking agents Human Resources: training and incentive schemes Technical support and emergency response Marketing consultancy Risk management and profitability assurance Balance the cash flow needs of its network ("Common Fund") Follow up and resolution of legal conflicts
Source: CNBV

A banking agent administrator facilitates the networks growth and decreases the costs associated to its installation when taking advantage of economies of scale. At the same time, it allows the standardization of the operative and technological systems, among other advantages. Business models The purpose of the modality of banking agents is to promote new models of profitable businesses that, through cost reduction, will allow financial institutions to increase their clientele by intensifying the geographical expansion of their services. At the same time, the commercial establishments will acquire comparative advantages in relation to their competitors when offering financial services, which will allow them to gain new clients and strengthen the loyalty of former clients. In rural and semi urban areas (characterized by low levels of Inclusion), it is considered that with this action a greater geographic coverage at a lower cost may be achieved, incorporating the unsatisfied demand to the financial system, the former of which, due to the high transaction costs, substituted basic financial services by informal, unregulated services at the margin of the banking system. In urban areas, the banking agents allow the clearing of branches, which represents a cost reduction for the financial institution, which will have the effect of lowering the final users commissions, apart from acquiring greater convenience and accessibility. The banking agent, far beyond functioning mainly as a retail spot for the financial institution, being a close and familiar spot for the population that makes daily usage of the correspondents establishment, may participate actively as a financial service promoter. Yet, if its reinforced with acquisition outlines (Member Get Member)20, it can catalyze significantly the confidence and familiarity with the financial system.
20

Fidelization and affiliation growth concept contemplating already registered members.

The greater beneficiaries of this outline are both the banked users and the non-banked ones. The costumers benefit because, when relying on more distribution spots, their travelling expenses are reduced, facilitating financial access and, therefore, promoting Financial Inclusion. The nonbanked users receive the opportunity of accessing basic financial products and services in the establishments which are closer and more familiar, in contrast with traditional branches. Independently from the extension of their traditional branch network, the bank institutions may benefit from the construction of a banking agents network which will allow them to expand their backbone clientele and gain a notable presence in more locations. This impetus will generate associations between banks, chains and commercial establishments, rapidly maximizing the geographical coverage of the basic bank services offer. In the rural areas, where big chains dont have such a strong presence and its more difficult to find establishments that carry out the requirements to act as banking agents, the administrative figure of networks provides a viable alternative for the expansion of banking infrastructure. Likewise, the government organisms and distribution networks of social programs may serve as spots for the construction of broad banking agents networks in areas of a low population density, of lesser resources and that are rural. Mobile phone banking agents The mobile phone banking agents represent a safer, efficient and inexpensive way of promoting the access to financial services through the expansion of the offer of products related to mobile phone devices. There are three business lines for exploring this technology, mobile bank, mobile payment and electronic charge purse (See table 1.13).

Table 1.13 Business lines for mobile phone banking agents

Mobile bank
Additional access channel for current bank customers Trasactions for higher amounts

Mobile payment

Electronic purse

Access channel to financial system Associated to pre-payed bank cards by the non-users or mobile accounts Transactions of low amounts Low amount transactions

Link to investment accounts, credit Charged to a mobile account, debit and debit cards, credits, among or credit cards others
Source: CNBV

32

33

As a vital complement to the introduction of the mobile phone banking agents figure, the regulatory framework forecasts the existence of Mobile Accounts21, defined as accounts associated to a mobile phone line. Depending on the information requirements that the customer must present for its opening, on the maximum monthly amounts allowed for transactions and on the balance that an account may be registered by, they are catalogued in three types, mobile unlimited account, low risk account and low transactionality account. Table 1.14 Business line requirements
Mobil account
a) Unlimited

Information requirements

Maximum amounts

The correspondent must integrate a file with the same information required for a normal Without restrictions bank account The costumer must identify himself presenting the required documents. A physical record is not required It will be established by each bank and approved by the CNBV

b) Low risk

c) Low transactionality

The costumer must only provide his full 2,000 Udis per customer per bank in name, address and date of birth. No physical the course of a calendar month record is required

Source: CNBV based on the general character dispositions to which the article 115 from the Law of Credit Institutions issued by SHCP refers to

A mobile account allows carrying out balance consultancies, cash withdrawals, electronic transferences (in accordance with the limits established for each type of account) and cash or check deposits. The institutions must permit transferences between mobile accounts, as with other bank accounts from other institutions, prohibiting the charge of interbank fees by this concept. On the other hand, the regulatory framework, in use of mobile telephony as a channel to provide and utilize financial services, anticipates certain measures that offer safety in the transactions having as an objective the generation of the necessary trust the user counts with to employ this medium and fulfill financial transactions at ease. The control measures are proportional to the risk that each one of the services represents. Due to the fact that the mobile payment is characterized by transferences of a lesser amount, the operations made in this way are subject to simplified requirements. This proportionality in the regulation allows the proliferation of products focused on offering transactional services of low amounts at lower costs, providing a low-income population with access to the system of electronic payments.
21

Circulars 2019/95 and 1/2006 from Mexicos Central Bank.

Table 1.15 Control measures

Measure
Number of accounts associated to each mobile phone Restriccion of one mobile phone per user12 Double authentication from the customer Transactional limit Destiny accounts register Requires security mechanisms in the transmission of sensitive information Protect the NIP in the screen Notifications when fulfilling operations Fraud prevention systems Kwow Your Customer procedures (KYC) Temporary deactivation of service

Mobil payment
Up to two accounts. One of them must be for micro payments Yes Not necessary 1,500 UDIS daily and 4,000 monthly No, for operations <250 UDIS Yes, for operations up to 1,500 UDIS No Yes Yes Yes Yes, simplified Yes

Mobil bank
It is possible to associate the accounts determined by the customer Yes Yes Defined by the customer Yes Yes Yes Yes Yes Yes Yes

Source: CNBV22

22

Cell phone is used like means of identification of the client.

34

35

Due to the familiarity with which the cellular phone is used today and its effect on 77%23 of the population, the different business models, based on the provision of financial services via these devices, have a very high potential to promote the access to and use of financial services. Graph 1.16 shows the possible transformation of the mobile phone users into users of financial services through a comparative between the percentage of debit cards users and the percentage of cell phone users.

Table 1.16 Possible impact of the use of cellular phones as banking agents 14

93% 88% 74% 66% 57%

90%

55%

59% 47% 32% 42%

59%

Norteast

North Northwest

Center West

Gulf and South

Southeast % Cellphone users

Metropolitan

% Debit card users

Potential growth

Source: Elaborated with information from the Telecommunications Federal Commission (COFETEL, as in the abbreviation in Spanish) and the CNBV 24

23 24

In accordance to the Federal Telecommunications Commission (COFETEL). The regions of this graph are defined by COFETEL, so that they dont coincide with the employed regions in this report.

Niche Banks The figure of Niche Bank refers to a newly specialized intermediary, with the possibility of taking deposits from the public and with complete access to the payment system. Given the faculty to take deposits from the public, the Niche Banks are subject to the regulatory standards equally applicable to the Commercial Banks in prudential maters. However, recognizing that the specialization of its services represents a lesser risk for them than the one faced by the institutions that fulfill a broader spectrum of the services allowed for a commercial bank, the niche banks have a lower minimum capital requirement. This means that the Niche Bank may obtain a banking license with a relatively lower capital. In this way, the minor costs associated with a license to operate as a Niche Bank reduce the entrance barriers to this market for the bidders of a smaller size that are looking to focus on a particular market or product.

Table 1.17 Levels of the minimum capital for Commercial Banking15

Operations permitted
Institutions that fulfill all the activities 16 Institutions specialized in local operation Institutions specialized in financial service corporatives Institutions specialized in issuing payment means
Source: CNBV2526

Minimum capital
90 million UDIS 54 million UDIS 36 million UDIS 36 million UDIS

25 26

In agreement with what was established in Article 19 of the Law of Credit Institutions. All those mentioned by Article 46 in the Law of Credit Institutions.

36

37

This measure seeks to promote Financial Inclusion through a better market segmentation and the development of new financial products. Also, it favors the substitution of cash by developing payment means of free acquisition and low transactionality, which allows commercial associations and, in addition, it provides greater protection to the consumer for being supervised institutions with prudential regulation. The Niche Bank, transmitter of electronic payment means, seeks to increase the competition in this market and the proliferation of this type of products at a lower cost for the users. To have as a characteristic the specialization in fundraising for the issuance of electronic payment means (pre-payed cards, debit cards, mobile accounts, etc), strengthens the access of the population that is currently unattended by traditional banking. The possibility of making electronic payments and transfers generates important benefits for the population that currently cannot access the financial system. In addition, the electronic payment means may lead towards a more complete banking process. Payment systems and Clearing Chambers (Switches)27 The switches are private enterprises that offer information transmission systems connected, on the one hand, to establishments that accept banking cards as a means of payment through points of sale terminals (POS) installed by acquiring banks and, on the other hand, to the banks that issue banking cards which authorize the charges to the debit or credit cards. They also function as a clearing chamber, charging the amount of the transaction to the bank issuer of the card, paying it to the acquiring bank and settling, by the end of the day, the sum of positions between these banks as well as the fees generated by the exchange of payment authorizations. Until early 2010, compensation chambers (switches) in Mexico operated under a scheme characterized by entry barriers and obstacles for competition due to: The implementation of a discriminatory structure of prices based on the number of operations (providing the exclusion of smaller participants). Discrimination based on prices for banks without equity stock participation in the two switches operating in the country. A rule that allows being a purchaser only to those participants in the market who also participate as issuers. Barriers for the entrance of new switches, establishing a connection of high costs and other technical barriers. Unilateral criteria determination and unclear policies of market entry and pricing structures by dominant participants.
27

See the document: "Is it sufficient for the exchange fees to be competitive? Issue-acquirement market evidence in Mexico. Published on the website of the CNBV by Economic Studies General Direction.

To face this situation, on May 2010 a reform was adopted in order to make it a requirement for authorized switches to intertwine, without interconnection charges. It is hoped that through this action the problems identified in terms of competence and entry barriers in the offer of services related to the payment system will be addressed. In particular, it is considered that under the new scheme of operation there are greater incentives to increase the network of point of sale terminals, increasing the attractiveness and feasibility of use of electronic payment means. Thus, the main benefits expected from the approval of the initiative reform are: Decrease the power of the dominant banking institutions on the structure of prices and costs. Increase the bargaining power of purchasers against issuers, making the market purchasers more appealing and generating lower discount rates. Increase the control of the authority over market participants and their operations, by introducing authorization rules and specific operations, and promoting operational expertise of the switches. Incentives to broaden the penetration of points of sale terminals by promoting competition in the acquiring market, enabling the specialization in switching activities and allow the entrance of non-banking participants. Equalize conditions for market entry, both for switches and new purchasers, regardless of size or shareholding. Consumer prices lower and more transparent, to the extent that competition in the merchant acquisitions and switches reduces the discount rates and costs for processing services and settlement payments. The above results in benefits for users of the payment system, when promoting a further expansion of market purchasers, and encourages competition as well as a more efficient price structure.

38

39

MACROECONOMIC 28 INDICATORS
In order to identify which are the relevant macroeconomic indicators for Mexico, it is necessary to identify all the components that integrate financial savings and understand if their incorporation to the financial system is linked to financing decisions and to private or public investment. To understand the financing dynamic helps to identify which are the incentives and disincentives that intermediaries have for obtaining and canalizing resources of specific segments of savers and which determine the strategies of the financial system for obtaining resources.

28

Indicators and analysis of this chapter were elaborated by the General Direction of Economic Research (DGEE, for its Mexican abbreviation) of the National Banking and Securities Commission, based on public sources of information, such as: Banxico, CONSAR, CNSF, INDEVAL and SHCP. For more information regarding this methodology refer to the document Financial Savings and its intermediation in Mexico (2000-2010) as well as the database, both files are available at the website of the CNBV.

Relevant macroeconomic indicators In order to identify the relevant macroeconomic indicators, it is necessary to understand the structure of financial savings and understand their usage in Mexico. The financial savings of the economy could be defined as the value of the financial assets and values held by individuals and corporate entities (both residents and foreigners) who are intermediaries through financial entities regulated in Mexico29. Such assets could be: bank deposits, fixed or variable rent values generated by the public sector and both national and foreign companies30. From a Financial Inclusion point of view, the behavior and usage of saving sources can be better understood by decomposing each of the instruments of the system itself and, providing services too, of each intermediary, as it can be seen in graphs 2.1 and 2.2.

Graph 2.1 Structure of financial savings

* Private pension funds are considered as individual investors because they are created by corporations to manage the resources for the retirement of their workers. The information of their investment portfolio is obtained from CONSAR, which keeps track of these funds on an annual basis.

Although other savings and credit mechanisms exist that are offered by non-regulated entities, in this definition we have only included those institutions that are regulated by the CNBV and other authorities. On the other hand, such definition considers as savings the balance of such actives and not their flows as some other perspectives which are used frequently (for example, savings measured towards national accounts). 30 As the values of fixed rent are also considered as part of financial savings, in this document only bank deposits and fixed rent values are considered.

40

41

Graph 2.2 Structure of financing in Mexico

Source: CNBV

Graph 2.3 shows the composition of the financial savings as a percentage of the Gross Domestic Product (GDP). Here it can be observed that the banking system has a greater participation in such composition, followed by external savings and that savings made by corporate entities and particulars. These three groups form almost 40% of the savings composition in the last 3 years.

Graph 2.3 Financial Savings as percentage of the GDP

75%
17%

52%
14% 14% 13% 12% 1% 2% 6% 17% 2% 3% 7% 17%

16% 15% 16% 2% 4% 9% 18%

15%

14%

12%

13%

15%

16%

14% 2% 3% 8% 17%

15% 2% 4% 10%

15% 2% 5% 11%

16%
2% 6% 11%

15% 3% 7%

15% 3% 6% 12%

14% 3% 6% 13%

16% 2% 7% 14%

12%

18%

18%

17%

18%

20%

20%

19%
1/

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Commercial and State-owned banks, other sensors 2/ Investment companies Corporations, individuals and revolving treasuries /4

Pension funds 3/ Insurance companies Foreign savings 5/

1/ Figures as of March 2010. 2/ Other sensors include Popular Savings & Loans Institutions and Credit Unions. 3/ It include assets issued in Mxico in hands of non-residents, assets issued abroad and credit granted by foreign financial institutions. Source: CNBV with data of Mexico's Central Bank, CONSAR, Indeval, SHCP and INEGI / Figures as of March 2010.

To observe the behavior of such components of savings, some additional disaggregation in certain topics can be made. In graph 2.4, it is observed that corporate entities and particulars have contributed importantly to savings, representing close to 10% of the GDP, while relevant treasuries, whose information can be disaggregated from 2008, have represented 3% of the GDP in the last 3 years31. The position of banks and brokerage firms has reduced their participation since 2004, maintaining a 4% since then32.
31

Relevant treasuries are those treasuries that belong to a certain institution (either public or private) and that have a large size, enough to have an account registered at Indeval. 32 It is important to point out that the position of banks could double some entries of saving, as we are aware that the acquisition of savings is backed up by their own assets, but we are not certain on which part of such savings is backed up by their loan portfolio and which part on their own investment portfolio. However, including such entry is useful as it illustrates the amount of resources available at hand for intermediaries.

42

43

Graph 2.4 Companies, particulars, relevant treasuries and position of intermediaries as percentage of GDP

16 % 12% 4% 5% 5% 6% 5% 4% 4% 3% 2% 3% 8% 9% 10% 9% 10% 12% 11% 10% 4% 4% 3%

6%

8%

8%

9%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Corporations, individuals and Revolving treasuries Revolving treasuries Individuals and corporations Banking and Brokerage Position

1/

Source: CNBV with data of Mexico's Central Bank, CONSAR, Indeval, SHCP and INEGI. 1/ Figures as of March 2010.

Similar in importance for the financial savings is the Savings System for Retirement, which has increased more than double in size from 2000 to 2010 as a GDP percentage. As it is shown in graph 2.5, the SIEFORES and the housing funds have been the main ones responsible for this growth, increasing their participation from 2% in 2000 to 9% in 2009 and 5% in 2010, respectively.

Graph 2.5 Saving system for retirement as percentage of GDP

14%
1% 1% 1% 1% 4% 4% 0% 1% 3% 3% 3% 1% 4% 1% 4% 1% 5% 4% 1% 5%

6%
1% 2% 2%

4%

4%

5%

5%

6%

7%

7%

7%

8%

9%

1/

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SIEFORES

Housing Funds

IMSS and ISSSTE (SAR 92)

Source: CNBV with data of Mexico's Central Bank, CONSAR, Indeval, SHCP and INEGI. 1/ Figures as of March 2010.

Also, among the external savings, the one with a greater participation has been used to finance the public sector, although this contribution has maintained itself relatively stable in time. Graph 2.6 External savings as percentage of GDP
17%

14%

8%

8%

9%

10%

10%

8% 9% 7% 7%

10%

10%

6%

6%

6%

6%

6%

5%

5%

6%

7%

6%

6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
External savings that finance to private sector 2/ External savings that finance to public sector 3/

1/

Source: CNBV with data of Mexico's Central Bank, CONSAR, Indeval, SHCP and INEGI. 1/ Figures as of March 2010. 2/ 3/ It include securities issued in Mexico in hands of non-residents, securities issued abroad and loans granted by foreign financial institutions.

44

45

Financing can be understood as the value of debt circulating in the market of values and the credit amount that regulated institutions give to the public sector as well as to the private one. Graph 2.7 shows the balance of circulating debt and given credits as GDP percentage, where public debt represents the most significant percentage of financing, followed by bank credits and circulating debt and credits issued and/or generated abroad. Up to March 2010, public circulating debt is 31% of the GDP, which represents one percentage point more that in 2009. Graph 2.7 Balance of circulating debt in Mexico and given credits as percentage of GDP
73%
14%

45%
15% 14% 14% 18% 12% 1% 4% 1% 13% 15% 1% 5% 1% 12% 1% 5% 2% 13%

16%

15%

13%

10%

11%

13%

14%

20%

21%

23%

26%

27%

27%

30%

31%

2% 6% 2% 13%

2% 6% 2% 12%

2% 6% 2% 14%

2% 6% 2% 15%

2% 6% 2% 17%

2% 6% 1% 17%

2% 6% 1% 17%

2% 7% 1% 18%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

1/

Bank credit and other sensors loans INFONAVIT and FOVISSSTE loans Public debt issuance in Mexico

Other intermediaries loans Private debt issuance in Mexico Outstanding debt and loans issued/originated abroad

Source: CNBV with data of Mexico's Central Bank, CONSAR, Indeval, SHCP and INEGI. 1/ Figures as of March 2010.

Forced and voluntary financial savings Once the components that integrate financial savings are identified, the latter can be regrouped in order to identify if such savings are forced or if these are voluntary; that is to say, if their channeling into the financial system is due to a private decision or a public decree. This way of classifying financial savings is important because behind the savings volume there are mandatory employee contributions as well as household and company decisions. The first have a forced origin and their mechanisms towards the Mexican Financial System (MFS) are based in legal fundaments, such as: 1) the employer, the employees and the Federal Government contributions in the social security system and the retirement funds, and 2) the investments that the pension funds do in the established system. This second group represents a voluntary saving that concretes itself through banks, brokerage firms and investment societies. The savings dynamic is pending on the growth of these economic agents and of their access to financial services that are offered by intermediaries; in particular, for households (including those employees of an informal sector). In graph 2.8 the forced and voluntary savings as a GDP percentage is shown, from 2000 to 2010. Due to changes in the retirement funds since the beginning of the 2000 decade, in Mexico an important growth of the forced savings has been observed. Between 2000 and 2009, forced savings have represented 20% in average from the total internal financial savings, its average annual growth rate as a GDP percentage was 10.3%. On the other hand, voluntary savings have represented 80% of the total, and its growth rate between 2000 and 2009 was 3.4%. The high participation of voluntary savings makes it important to understand: a) how is it that voluntary savings arrive to the financial system; b) which are the tools that obtain it and that head it into financing; c) which are the main savers.

46

47

Graph 2.8 Forced and voluntary savings as percentage of GDP

60%
50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2010

1/

Forced Domestic Savings 2/

Voluntary Domestic Savings 3/

Source: DGEE with data of Mexico's Central Bank Indeval, CNSF and INEGI 1/ Figures as of March 2010. 2/ It includes SIEFORES savings, IMSS and ISSSTE contributions and the housing funds INFONAVIT and FOVISSSTE. 3/ It includes savings canalized through banks and other sensors, investment companies, corporations, individuals, revolving treasuries and intermediaries position.

Most of the voluntary savings become a value handled by the general population and bank deposits and other sensors33, as can be seen in graph 2.9.
33

Denominating other sensors includes Credit Unions, the EACP and the SOFIPOS, which registered a deposit balance of 329 mp and 48,000 mp in March 2010, respectively.

Graph 2.9 Voluntary savings per intermediary as percentage of GDP

45%

32%
10% 9% 4% 2% 5% 3% 5% 3% 11% 12% 12% 13% 14%

14%

14%

13%

14%

6%
4%

6% 4%

5%
5%

4% 6%

4%

3% 6%

4% 6%

4% 7%

7%

17%

17%

17%

18%

18%

18%

17%

18%

20%

20%

19%

1/

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Banks and other sensors 2/ Investment Companies Banks and brokerage position Corporations, individuals and revolving treasuries through brokerage and banks

Source: DGEE with data of Mexico's Central Bank Indeval, CNSF and INEGI 1/ Figures as of March 2010. 2/ Other sensors includes Popular Savings and Loans Sector and Credit Unions.

Channeling savings in Mexico It is not possible to understand the savings dynamics without explaining the behavior of financing34 as the incentives and disincentives used by intermediaries to channel savings, are defined by strategies of uptake of the financial system. In Mexico, the main user of financial savings is the public sector: between 2000 and 2009, 57% of total internal financing was absorbed by this sector35. In graph 2.10, the historical internal financing for the public sector and non-financing private sector as a GDP percentage may be observed.
34

Financing is defined as the balance of circulating debt in the market of values and credit given by Regulated Institutions to both public and private sectors. 35 Public sector includes Federal Government, Non-centralized organisms and companies, IPAB, Banxico, FARAC, and State and Municipal Governments.

48

49

Graph 2.10 Internal financing to public and private non-financial sector as a GDP percentage
60% 50% 40% 30% 20% 10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1/

Public Sector

Private Sector

Total

Source: DGEE with data of Mexico's Central Bank Indeval, CNSF and INEGI 1/ Figures as of March 2010.

Most financing for the public sector (84% on average between 2000 and 2009) has been given towards placing debt titles, which can be observed in graph 2.11. On the other hand, in fundamental aspects, financing the private sector is linked to banks: consumption, housing and commercial, as only 8% of total financing for this sector is due towards debt issuance, as shown in graph 2.12. Graph 2.11 Internal financing to public sector as a GDP percentage
40% 35% 30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1/

Public sector credit

Outstanding Public debt securities

Total

Source: DGEE with data of Mexico's Central Bank Indeval, CNSF and INEGI 1/ Figures as of March 2010.

Graph 2.12 Internal financing to private non-financial sector as a GDP percentage

30% 25% 20% 15% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1/

Outstanding private debt securities Housing loans

Trade loans Consumer loans

Source: DGEE with its own data, Mexico's Central Bank, SHCP and INEGI 1/ Figures as of March 2010.

50

51

However, with respect of comparable countries, Mexico is located at the second to last place in credit given to the private sector as percentage of the GDP. Graph 2.13 Domestic loans given to private sector as a percentage of GDP (2008)

Argentina Mexico Peru Philippines Kenya Colombia Nigeria Romania Bangladesh Russia Poland India Brazil Hungary Chile Malaysia China South Korea Thailand South Africa Spain

14% 22% 25% 29% 30% 34% 34% 38% 39% 41% 50% 51% 56% 70% 98% 101% 108% 109% 113% 145% 201%

Source: World Development Indicators, World Bank and CNBV for Mexicos data.

Financing the productive sector and financial inclusion Financial inclusion not only comprehends access to saving sources or household financing, but it also relies on resources available by the productive sector of the country. According to a survey conducted by the World Bank, among the developing countries36, Mexico is one of those economies with the lowest percentage of companies with access to credit or loans from any financial institution.

36

The World Bank has conducted a survey since 2002 focused on companies in 123 developing countries known as Enterprise Surveys. Such survey is representative for the business sector of each country and covers a wide range of topics related to business including financing access, corruption, infrastructure, crime, competence, etc. Data used for these graphs can be found at www.enterprisesurvey.org.

Graph 2.14 Percentage of companies with a credit line or loan from a financial institution

73%

70%

69% 65% 60% 52% 51% 50% 43% 42% 39% 33% 31% 30% 25%

11% 4%

Colombia (2006)

Romania (2009)

Thailand (2006)

Hungary (2009)

Malaysia (2007)

Mexico (2006)

Chile (2006)

Brazil (2009)

Kenya (2007)

Argentina (2006)

Philippines (2009)

Bangladesh (2007)

Source: Enterprise surveys, World Bank.

Also, it can be observed that in Mexico the investment in fixed assets and the companies labor capital is financed, in the first place, with their own means, throughout suppliers or the external market, which suggests a low penetration of the financial system in the business sector. In graph 2.15, the financing to business investment in different countries is shown. In 2006, only 15% of the investment of Mexican enterprises was financed through bank credits or debt issuance and .06% via share issuance, those figures are lower than the average in similar countries.

52

South Africa (2007)

Nigeria (2007)

Poland (2009)

Russia (2009)

Peru (2006)

53

Graph 2.15 Financing for business investment

China (2003) Thailand (2006) Peru (2006) Malaysia (2007) Colombia (2006) Brazil (2009) Chile (2006) Average India (2006) Spain (2005) South Africa (2007) Argentina (2006) Bangladesh (2007) Nigeria (2007) South Korea (2005) Kenya (2007) Mexico (2006) Philippines (2009) 0% 20% Own resources 1/ Other 3/ Suppliers credit 5/ 40% 60% 80% 100%

Bank credit 2/ Foreign resources 4/

Source: Enterprise surveys, World Bank. 1/ Proportion of fixed asset purchases financed with own resources and / or retained earnings 2/ Proportion of fixed asset purchases financed with bank loans 3/ Proportion of fixed asset purchases financed with debt issue, non-financial institutions, lenders, relatives, etc. 4/ Proportion of fixed asset purchases financed with social capital or share issue 5/ Proportion of fixed asset purchases financed with suppliers credit

This is also reflected in the market value of the bonds issued by private sector in Mexico as a GDP percentage, being one of the lowest among comparable countries, which can be seen in graph 2.16. Graph 2.16 Private sector bonds in stock markets

71%

38%

41%

19% 11% 1% 1% 1% 2% 2% 3% 4% 4% 5%

Malaysia

China

Brazil

Mexico (2009)

Source: World Federation of Exchanges and World Bank. Mexicos data: DGEE, Mexicos Central Bank and INEGI.

54

South Korea

Argentina

South Africa

Colombia

Thailand

Russia

Spain

India

Chile

Peru

55

In the same way, in Mexico only 2% of labor capital is financed with bank credit, while the average in comparable countries is around 17%, as shown in graph 2.17. Graph 2.17 Enterprises labor capital financing

China (2003) Thailand (2006) Colombia (2006) Brazil (2009) Malaysia (2007) Peru (2006) Chile (2006) India (2006) Average Romania (2009) Hungary (2009) Spain (2005) Poland (2009) South Korea (2005) Mexico (2006) South Africa (2007) Argentina (2006) Russia (2009) Philippines (2009) Kenya (2007) Bangladesh (2007) Nigeria (2007) 0% 20% 40% 60% Bank credit 2/ Capital 4/ 80% 100%

Own resources 1/ Other 3/ Suppliers credit 5/

Source: Enterprise surveys, World Bank. 1/ Proportion of working capital financed with own resources 2/ Proportion of working capital financed with bank loans 3/ Proportion of working capital financed through non-financial institutions, lenders, relatives, etc. 4/ Proportion of working capital financed with foreign resources 5/ Proportion of working capital financed with suppliers credit

Therefore, while the enterprises do not have access to financing sources, both from the market value and the banking system, competition among intermediaries for financing enterprises will decrease.

Table 2.18 National business survey on competitiveness, access and usage of financial services (ENE) The national business survey on competitiveness and access and usage of financial services is a joined effort of the Bank of Mexico, the InterAmerican Bank for Development and the National Banking and Securities Commission. Such survey will be held in the second half of 2010 with the objective of obtaining information, on a national level, of private nonfinancing enterprises. With this survey it will be possible to stratify the information by size of the company and size of locality, which will produce quantitative information on usage and sources of financing; giving new information regarding the penetration of other financial services and exploring the elements that affect the competitiveness of non-financing enterprises. In this respect, the survey takes into account specific characteristics of the company such as: its level of formality, income-expenses, main sources of financing (including both formal and informal) and the usage of payment means, investments and insurance to improve productivity. It also identifies the main barriers found by entrepreneurs to use the financing infrastructure more efficiently.
Source: CNBV

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ACCESS INDICATORS
Access indicators for financial services allow us to evaluate the penetration of the financial system in the country and, therefore, analyze if the infrastructure to offer such services is adequate for each type of population, allowing the suppliers to develop new products and services. The scope of the infrastructure available for offering financial services is determined by access points between people and financial institutions, which are defined as channels. Branches or service offices, ATMs, selling points, Internet and correspondent networks (traditional and mobile phones) are distribution channels of financial services. The figures presented are from March, 2010.

This second report of financial inclusion adds analysis levels to the infrastructure described in the first report, for example: 1. The point of sale terminals (POS) are present at a municipality level to fulfill information of branches and ATMs with identical detail level. 2. Indicators were obtained according to the regions defined in the National Plan for Development. 3. Municipalities are defined into six categories: rural, in transition, semi-urban, urban, semi-metropolis and metropolis. The delegations of the Mexico City have been analyzed apart from other categories to avoid any overestimations. 4. Together with the geographical and demographical indicators at a national, state and municipality level, other indicators are included in order to show the number of access points (branches or service offices), the amount of municipalities where an access point is located (mainly branches) and the number of adults with the possibility of accessing it; this means, those who could be attended because of having a branch in their municipality. 5. Additional information in regards to financial services offers is reached when including the Popular Saving and Loan Institutions (PSLI) in the analysis, as well as the banking system (Commercial Bank and Development Banks). Also the EACP are presented as in the following division: Cooperatives and Microfinance37. In table 3.1 the classification of institutions offering financial services is shown: Commercial Bank, State-owned Bank, Savings and Popular Credit Entities (divided into Cooperatives and Microfinance) and, at the end, the Non-Regulated Institutions. Table 3.1 Classification of institutions that offer financial services
PSLI

Commercial Bank

Cooperatives

Micro Finance

Stateowned Bank

Non Regulated Institutions

Non attended

Source: CNBV

37

Classification taken from CGAP in their report Financial Access 2000. Among the category of Cooperatives B B the Credit Union or Savings and Loans Cooperative Societies are included, and for Microfinance we refer to Popular Financial Societies (SOFIPOS), Credit Unions and Financing Societies with a Limited Object (SOFOLES). In the case of Non-Regulated Institutions, the CNBV is actually elaborating a database to identify them and support their inclusion in the regulation system.

58

59

In graph 3.2 we can observe the number of institution belonging to each category. The total amount of regulated institutions in the country is 285. When this report was closed (data from March, 2010), Microfinance was composed by 137 Credit Unions, 16 SOFOLES and 32 SOFIPOS. Table 3.2 Number of institutions in each category
185

57
41

2 Commercial Banks State-owned Banks2 Cooperatives Micro Financing

Source: CNBV38

Indicators on a national level This section analyses demographic and geographic indicators of the different channels or contact points, and it continues with indicators for the total amount of branches, the municipalities that provide the service, as well as the data related to adults in the possibility of accessing each type of institution. Geographical and demographic indicators Demographic indicators39 per 10,000 adults and geographical by 1,000 km2 consider the Commercial Bank, the State-owned Bank and the PSLI. Demographic indicators give us an approach of the average of people attended by some contact point (see Table 3.3). The demographic indicator of branches increases considerably as it goes from 1.37 to 1.77 due to the incorporation of PSLI (see graph 3.4) and the more than 300 offices of service provided by Compartamos Banco. In the case of ATMs, the indicator presents a marginal increase, which is not true for the point of sale terminals, as the indicator decreases.

38

Only Bansefi and Banjrcito are considered in this category as these have offices for attending the general population. 39 Demographic indicators at a municipality level are shown in Annex 7, included only at the CD-ROM.

Table 3.3 Geographic and demographic indicators

Source: CNBV

Graph 3.4 shows the demographic indicator disaggregated into the different types of institution. Graph 3.4 Branches per 10,000 adults
1.77 1.37
0.06 0.10 0.13 0.07

Micro Financing
Cooperatives
1.31

1.47

State-owned Banks Commercial Banks

Jun. 09

Mar. 10

Source: CNBV

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Access points Taking into account only the number of access points, there are in Mexico 13,580 offering financial services. Graph 3.5 shows the number of points per each institution category. All together, the PSLI represent 13% of the total Regulated Financial Institutions, being the Cooperatives those with a greater presence at a national level after the Commercial Bank, which holds up to 83% of all branches in the country. Graph 3.5 Total number of access points by type of institution

768 1,029 548

13,580 11,235

Coomercial Banks

State-owned Banks

Cooperatives

Micro Financing Total Regulated Institutions

Source: CNBV

The following maps show the presence of branches in country municipalities. Municipalities on a gray color show that there are Commercial Bank branches as well as State-owned Bank ones. Municipalities in a mid gray tone show that there are only branches of Popular Savings and Loan Institutions and in a dark gray color the municipalities that have the three types of institutions. In map 3.7, it can be seen how the PSLI complements certain municipalities with no Commercial Bank presence; however, the amount of municipalities without presence of any financing institution is still significant.

Map 3.6 Presence of access points

Ranking

Only CB and SB (449 municipios) Only PSLI (114 municipios) CB + SB + PSLI (489 municipios) Without branches(1,404 municipios)

Source: CNBV

Map 3.7 Presence of access points in the Center region of the country

Ranking Only CB and SB (449 municipios) Only PSLI (114 municipios) CB + SB + PSLI (489 municipios) Without branches(1,404 municipios)

Source: CNBV

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Municipalities with access points Graph 3.8 shows the number of municipalities that have, at least, one branch of any kind of financial institution. The Commercial Bank for example, is in 802 municipalities being the sector with 32.7% of the total municipalities of the country. Coming in second, Cooperatives are present in 18.3% of municipalities. Taking into account all institutions with regulated financial services, 1,052 municipalities of the country (43% of the total) are covered.

Graph 3.8 Municipalities with presence of some branch per sector

900 800

32.7%

35.0% 30.0%

Number of municipalities

700
600 500

802

Percentage of municipalities

25.0%

17.0%

18.3% 450 12.7%

20.0%
15.0% 10.0% 5.0% 0.0%

400

417
300 200

311

100
0

Commercial Banks State-owned Banks

Source: CNBV

Cooperatives

Micro Financing

It is important to observe the distribution of branches in municipalities; this is the concentration of these in municipalities with presence. In graph 3.9 we can see how the Commercial Bank has an average of 14 branches in each municipality where it is located, far above from other institutions. The Sate-owned Bank, for example, has 548 branches located in 417 municipalities, which is nearly one branch per municipality, which indicates a greater coverage due to its number of branches.

Graph 3.9 Average of branches per municipality per sector

14.0

2.3 1.3

2.5

Commercial Bank

State-owned Bank

Cooperatives

Micro Financing

Source: CNBV

Adults with possibility of access In spite of the fact that 57% of the municipalities (1,404) do not count with presence of any kind of branch, the average of adults living in the municipalities with the presence of financial institutions is 90%. Graph 3.10 shows the percentage of adults living in a municipality with a branch per type of institution; in other words, they have access to the financial system.

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65

Graph 3.10 Percentage of adults living in municipalities with branches per sector

85.6%

65.6% 53.7%

66.1%

Commercial Bank

State-owned Bank

Cooperatives

Micro Financing

Source: CNBV

Indicators at a regional level

Among the five regions of the country, the South-Southeast region has the lowest level of indicators. In the case of branches, it can be seen in graph 3.11 that such region is the only one below the national average with 1.31 branches per 10,000 adults. On the contrary, the Northeast region has the highest indicator with 2.09 branches.

Graph 3.11 Amount of branches per every 10,000 adults

2.02 1.84

2.09 1.86

National Average = 1.77

1.31

Center

Central-Western

Northeast

Northwest

South-Southeast

Source: CNBV

In regards to the total number of municipalities with the presence of any branch, the centralwestern region has a greater percentage compared with other regions, reaching 73% of municipalities with coverage. The South-Southeast region shows the lowest indicator, mainly due to the fact that Oaxaca has 25% of the total municipalities of the country (570 in total)

Graph 3.12 Percentage of municipalities with branches

72.8%

57.7% 50.4% 52.0%

National Average = 42.9%

27.2%

Center

Central-Western

Northeast

Northwest

South-Southeast

Source: CNBV

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Adults living in municipalities with presence of any kind of branch are above 94% in all regions, with the exception of the South-Southeast region with 76% of the total of adults.

Graph 3.13 Adults with possibility of access

94%

94%

95%

98%

National Average = 90%

76%

Center

Central-Western

Northeast

Northwest

South-Southeast

Source: CNBV

When dividing branches per region and per type of financial institution, it can be seen that the Northeast region has a greater proportion of the Commercial Bank, in comparison with other types of branches in the region. The State-owned Bank has more branches and a greater presence at the South-Southeast region. At the Central-Western region there is a greater presence of Cooperatives, as 56% of the branches are located in this region. Finally, Microfinance represents a greater percentage in the South-Southeast region. 32% Commercial Bank branches and 34% Microfinance ones are located in the Central region. Graph 3.14 shows the distribution of branches in each region.

Graph 3.14 Distribution of branches per region

100% =

4,143

3,201
5% 18%

2,280 4% 5% 2%

1,196 4% 2% 2%

2,760

6% 3% 4%

7%
8%

7%

4%

87% 73%

90%

92% 78%

Center Commercial Bank

Central-Western

Northeast

Northwest

South-Southeast

State-owned Bank

Cooperatives

Micro Financing

Source: CNBV

Indicators at a State level In Table 3.15 the demographic indicators per branches per 10,000 adults are shown. At the end of March 2010, it can be seen that Chiapas is again last place on the list, but some changes in other states are observed as in the case of Oaxaca, which improves its position at the ranking; this is due to the incorporation of PSLI with a greater weight on this state. On the other hand, Tlaxcala is positioned as one of the states with fewer branches per 10,000 adults, slightly above Chiapas. The opposite situation is the case of Nuevo Len, which is the state with the highest indicator related to the population of the entity and below this state is Colima, as it is one of the states with fewer adults overall. Regarding ATMs and point of sale terminals, Quintana Roo and Baja California Sur show higher indicators than the national average and part of this is due to the high commercial and touristic activity that can be found in both states. Quite surprising are the conditions of Puebla, Estado de Mxico and Hidalgo, which even if located in the Central region, show very low indicators when compared with other states of this same region.

68

69

Table 3.15 Demographic indicators by federal entity branches, ATMs and POS per 10,000 adults
State
Nuevo Len Colima Distrito Federal Quertaro Baja California Sur Jalisco Guanajuato Sonora Coahuila Sinaloa Quintana Roo Tamaulipas Morelos Chihuahua Michoacn Campeche Baja California Aguascalientes Nayarit Yucatn San Luis Potos Tabasco Zacatecas Mxico Puebla Hidalgo Durango Veracruz Oaxaca Guerrero Tlaxcala Chiapas NACIONAL NACIONAL SIN DF

Adult Population
3,246,923 439,087 6,888,272 1,213,538 411,910 5,005,344 3,469,242 1,797,539 1,867,987 1,912,416 947,714 2,311,172 1,215,293 2,427,689 2,778,938 567,816 2,294,435 781,825 692,765 1,397,286 1,718,217 1,445,572 962,082 10,656,715 3,897,873 1,706,281 1,077,900 5,200,517 2,454,180 2,107,764 789,314 2,995,315 76,678,921 69,790,649 min 411,910 max 10,656,715

Branches
2.81 2.80 2.71 2.55 2.43 2.38 2.23 1.96 1.92 1.89 1.86 1.85 1.84 1.82 1.79 1.67 1.66 1.64 1.60 1.58 1.41 1.39 1.38 1.35 1.34 1.32 1.31 1.30 1.26 1.20 1.03 1.01 1.77 1.68 1.01 2.81

Branches Ranking
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

ATMs
9.14 5.90 8.16 6.02 7.23 5.15 3.65 5.68 6.76 4.29 9.20 6.68 4.21 5.90 2.71 4.46 6.55 5.46 3.94 3.73 3.76 3.94 2.69 2.97 2.63 2.96 3.04 3.06 1.69 2.74 2.34 1.77 4.53 4.17 1.69 9.20

ATMs Ranking
2 10 3 8 4 13 21 11 5 15 1 6 16 9 27 14 7 12 17 20 19 18 28 24 29 25 23 22 32 26 30 31

POS
101.2 78.8 113.9 81.6 143.2 77.2 52.1 67.6 73.6 64.3 142.9 58.7 57.0 58.2 41.7 48.6 56.6 85.4 47.9 59.6 42.5 36.6 32.2 40.7 36.6 31.1 43.8 35.8 23.9 34.5 25.1 20.9 57.7 52.2 20.9 143.2

POS Ranking
4 7 3 6 1 8 17 10 9 11 2 13 15 14 22 18 16 5 19 12 21 24 28 23 25 29 20 26 31 27 30 32

Source: CNBV and CONAPO

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9.20

Quintana Roo

Nuevo Len
2.81 2.80
2.71

Nuevo Len
9.14 8.16 7.23

Colima

Distrito Federal

Distrito Federal
Quertaro
2.55
2.43

Baja California Sur

6.76 6.68

Coahuila

Baja California Sur

Tamaulipas

Jalisco
2.38 2.23
1.96

Baja California
6.55
6.02 5.90

Guanajuato

Quertaro

Sonora
Coahuila
1.92
1.89

Chihuahua
5.90 5.68

Colima

Sinaloa

Sonora

Quintana Roo
Tamaulipas

1.86 1.85
1.84

Aguascalientes
5.46 5.15 4.46
4.29

Jalisco

Morelos
Chihuahua Michoacn

Campeche

1.82
1.79

National Average 4.53

Sinaloa
4.21

Morelos

Campeche
Baja California

1.67 1.66
1.64

National Average 1.77

Nayarit
3.94 3.94

Tabasco
3.76 3.73 3.65 3.06
3.04 2.97 2.96 2.74

Aguascalientes
Nayarit Yucatn

San Luis Potos

1.60
1.58

Yucatn

b) ATMs per 10,000 adults

Guanajuato

San Luis Potos

Tabasco

1.41 1.39

a) Branches per 10,000 adults

Veracruz

Durango

Zacatecas
Mxico Puebla

1.38

Table 3.16 Position of the states by access point

Mxico

1.35
1.34

Hidalgo

Guerrero
2.71 2.69 2.63
2.34 1.77 1.69

Hidalgo
Durango

1.32 1.31

Michoacn

Zacatecas

Veracruz
Oaxaca Guerrero

1.30

Puebla

1.26
1.20

Tlaxcala

Chiapas

Tlaxcala
Chiapas

1.03

Oaxaca

1.01

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c) Points of sale per 10,000 adults

143

143

Media Nacional 57.7

114 101

85

82

79

77

74

68

64

60

59

58

57

57

52

49

48

44

43

42

41

37

37

36

34

32

31

25

24

Jalisco

Quertaro

Durango

Tabasco

Zacatecas

Yucatn

Veracruz

Hidalgo

Mxico

San Luis Potos

Aguascalientes

Distrito Federal

Guanajuato

Michoacn

Campeche

Guerrero

Quintana Roo

Tlaxcala

Tamaulipas

Coahuila

Morelos

Baja California

Nuevo Len

Baja California Sur

Source: CNBV

To analyze in greater detail the impact of each type of institution in the demographic indicator, in table 3.17, the number of branches per 10,000 adults is disaggregated. It is important to point out that Colima is the state with the highest indicator in Cooperatives as its general indicator increases importantly. In the case of Microfinance, Quertaro is the first state and Chiapas also obtains a noticeable indicator with a third place position on a national level.

Chihuahua

Chiapas

Colima

Nayarit

Oaxaca

Sonora

Sinaloa

Puebla

21

Table 3.17 Number of branches per 10,000 adults per type of institution
Demographic indicator (branches per 10,000 adults)
Estado Commercial Bank Ranking State-owned Bank Ranking Cooperatives Ranking Micro Financing Ranking Total Indicador Ranking

Nuevo Len Colima Distrito Federal Quertaro Baja California Sur Jalisco Guanajuato Sonora Coahuila Sinaloa Quintana Roo Tamaulipas Morelos Chihuahua Michoacn Campeche Baja California Aguascalientes Nayarit Yucatn San Luis Potos Tabasco Zacatecas Mxico Puebla Hidalgo Durango Veracruz Oaxaca Guerrero Tlaxcala Chiapas
NACIONAL NACIONAL SIN DF min max

2.61 1.73 2.47 1.54 2.16 1.90 1.44 1.76 1.69 1.71 1.61 1.69 1.56 1.55 1.23 1.20 1.61 1.29 1.21 1.18 1.04 1.20 1.03 1.20 1.11 1.07 1.09 1.03 0.78 1.01 0.85 0.72 1.47 1.37 0.72 2.61

1 6 2 14 3 4 15 5 8 7 10 9 12 13 17 19 11 16 18 22 26 20 28 21 23 25 24 27 31 29 30 32

0.02 0.11 0.09 0.07 0.05 0.05 0.05 0.04 0.02 0.04 0.05 0.07 0.09 0.02 0.12 0.11 0.03 0.04 0.07 0.09 0.08 0.06 0.12 0.06 0.09 0.11 0.03 0.10 0.14 0.09 0.09 0.10 0.07 0.07 0.02 0.14

31 4 9 18 24 22 23 25 32 26 21 17 11 30 3 6 29 27 16 10 15 20 2 19 13 5 28 7 1 14 12 8

0.10 0.84 0.01 0.50 0.05 0.33 0.56 0.02 0.12 0.07 0.13 0.05 0.11 0.09 0.36 0.25 0.00 0.17 0.27 0.22 0.19 0.04 0.21 0.01 0.05 0.06 0.15 0.07 0.30 0.09 0.01 0.01 0.13 0.15 0.00 0.84

17 1 28 3 25 5 2 27 15 20 14 23 16 19 4 8 32 12 7 9 11 26 10 30 24 22 13 21 6 18 29 31

0.07 0.11 0.13 0.44 0.17 0.09 0.19 0.13 0.09 0.06 0.06 0.04 0.08 0.15 0.08 0.12 0.03 0.14 0.04 0.09 0.10 0.10 0.02 0.08 0.09 0.08 0.05 0.10 0.04 0.01 0.08 0.19 0.10 0.10 0.01 0.44

23 10 8 1 4 14 2 7 15 25 24 29 19 5 20 9 30 6 28 17 11 13 31 18 16 21 26 12 27 32 22 3

2.81 2.80 2.71 2.55 2.43 2.38 2.23 1.96 1.92 1.89 1.86 1.85 1.84 1.82 1.79 1.67 1.66 1.64 1.60 1.58 1.41 1.39 1.38 1.35 1.34 1.32 1.31 1.30 1.26 1.20 1.03 1.01 1.77 1.68 1.01 2.81

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Source: CNBV

To analyze in greater detail the importance of institutions in some states, we have selected some examples. Colima has 123 branches of which 30% are Cooperatives and due to this fact it obtains the second place in relation to this indicator. In Oaxaca, it can be seen that Cooperatives also play a relevant role as the value of this indicator is explained by the 24% per the number of Cooperatives in this state. The particular situation of Quertaro can be highlighted, as it has 310 branches and shows the highest indicator in terms of Microfinance, and therefore, its indicator is explained in 17% due to this type of institution.

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Table 3.18 Examples of distribution of branches per type of institutions

100% = 382
2% 0% 2%

911
3% 4% 1%

123
4%

310
4%

310

17% 30% 24% 20% 4% 11% 3%

97%

93%

62%

62%

60%

Baja California

Nuevo Len

Colima

Oaxaca Cooperatives

Quertaro Micro Financing

Commercial Bank

State-owned Bank

Source: CNBV

As a way of summarizing, table 3.19 shows the federal entities with the highest and lowest number of institutions in each category. It can be seen that in Colima 30% of the branches are Cooperatives and, on the other hand, Baja California has no presence of such institutions. Table 3.19 States with the highest and lowest presence of institutions
Commercial Bank
States with the higher presence Baja California 96.9% Nuevo Len 92.9% Tamaulipas 91.3% States with the lowest presence Colima 61.8% Oaxaca 61.6% Quertaro 60.3%

State-owned Bank
States with the higher presence Oaxaca 11.0% Chiapas 9.5% Zacatecas 9.0% States with the lowest presence Chihuahua 1.4% Coahuila 1.1% Nuevo Len 0.8%

Cooperatives
States with the higher presence Colima 30.1% Guanajuato 24.9% Oaxaca 23.9% States with the lowest presence Chiapas 0.7% Distrito Federal 0.5% Baja California 0.0%

Micro Financing
States with the higher presence Chiapas 18.4% Quertaro 17.4% Aguascalientes 8.6% States with the lowest presence Baja California 1.6% Zacatecas 1.5% Guerrero 0.8%

Source: CNBV

Also, graph 3.20 shows the percentage of municipalities with at least one branch per each federal entity. States with fewer municipalities covered are Oaxaca, Yucatn, Puebla, Tlaxcala and Sonora. Table 3.20 Percentage of municipalities with at least one branch
100%
90%

80% 70% 60% 50%

40%

National Average 42.9%

30% 20% 10% 0%

Guanajuato

Quertaro

Puebla

San Luis Potos

Guerrero

Veracruz

Durango

Distrito Federal

Aguascalientes

Michoacn

Nuevo Len

Chihuahua

Campeche

Coahuila

Nayarit

Mxico

Quintana Roo

Morelos

Tamaulipas

Zacatecas

Baja California Sur

Baja California

Tabasco

Yucatn

Chiapas

Source: CNBV

Indicators at a municipality level For this section, we will keep using the classification of municipalities which was used in the previous report, as it favors the analysis when comparing municipalities of similar sizes. In some cases, to simplify the process, we only used two categories: rural and urban. The first category considers those municipalities with less than 50,000 inhabitants40, while the second category includes those greater than 50,000. With this classification, we will show demographic indicators per type of municipality and after the presence indicators, this is, the number of contact points, the amount of municipalities with branch presence and the amount of adults with access possibilities.

74

Tlaxcala

Hidalgo

Oaxaca

Sinaloa

Sonora

Colima

Jalisco

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Table 3.21 Classification of municipalities per inhabitants range

Clasificacin Rural Tipo de municipio
Rural In transition Semi-urban Urban Semi-metropolis Metropolis

Rango de habitantes
0 5,000 5,001 15,000 15,001 50,000 50,001 300,000 300,001 1,000,000 > 1,000,001

Urbano
Source: CNBV

Demographic access indicator (branches) It is possible to see that as the size of the municipality increases, the Commercial Banks presence increases considerably until reaching 90% in the metropolis and 91% in Mexico City. In rural municipalities, Cooperatives have greater participation in the demographic indicator with 61%. However, there is an important difference between rural municipalities with an indicator of 0.59 and the metropolis municipalities with 2.26. Such analysis can be seen in table 3.22.

Table 3.22 Number of branches per 10,000 adults

Classification of municipalities
Institutions Commercial Bank State-owned Bank Cooperatives Micro Financing Indicador Branches per 10,000 adults 1.47 0.07 0.13 0.10 1.77 83% 4% 8% 6% 100% Rural 0.15 26% 0.05 9% 0.36 61% 0.03 4% 0.59 100% In transition Semi-urbans 0.41 56% 0.13 18% 0.19 25% 0.01 1% 0.73 100% 0.66 0.12 0.18 0.07 1.02 64% 12% 17% 7% 100% Urbans 1.38 0.08 0.16 0.13 1.74 79% 4% 9% 7% 100% Semimetropolis 1.74 0.04 0.11 0.11 2.00 87% 2% 6% 5% 100% Metropolis 2.03 0.03 0.10 0.09 2.26 90% 1% 5% 4% 100% 2.47 0.09 0.01 0.13 2.71 DF 91% 3% 1% 5% 100%

Source: CNBV

40

Criteria used by the Development Bank.

In graph 3.23 the composition of branch indicators classified per type of institution and type of municipality is shown. It can be observed that in rural municipalities the participation of Cooperatives is much greater than that of the Commercial Bank. It is also evident that the Stateowned Bank has a better position at transition and semi-urban municipalities. The Commercial Bank has a greater presence in bigger municipalities.

Table 3.23 Composition of indicators by type of institution

100% =

0.59
0.03

0.73 0.01
0.19

1.02 0.07 0.18 0.12

1.74 0.13 0.16

0.08

2.00 0.11 0.11 0.04

2.26
0.09 0.10 0.03

2.71 0.13 0.09 0.01

0.36

0.13

1.38 0.05 0.41 0.66

1.74

2.03

2.47

0.15

Rural

In transition

Semi-urbans

Urbans

Semi-metropolis

Metropolis

DF

Commercial Bank

State-owned Bank

Cooperatives

Micro Financing

Source: CNBV

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Number of access points In terms of number of branches or contact points, the distribution of the 13,580 branches is shown in table 3.24. It can be seen that the Microfinance branches are distributed along all types of municipalities, with a better position at urban and semi-metropolis.

Table 3.24 Number of access points

Classification of municipalities
Institutions Access points 83% 4% 8% 6% 100% Rural 18 26% 6 9% 43 61% 3 4% 70 100% In transition Semi-urbans 179 56% 56 18% 81 25% 4 1% 320 100% 796 64% 143 12% 216 17% 85 7% 1,240 100% Urbans 3,118 79% 170 4% 360 9% 284 7% 3,932 100% Semimetropolis 3,513 87% 79 2% 222 6% 219 5% 4,033 100% Metropolis 1,910 90% 29 1% 97 5% 84 4% 2,120 100% DF 1,701 91% 65 3% 10 1% 89 5% 1,865 100%

Commercial Bank 11,235 State-owned Bank 548 Cooperatives 1,029 Micro Financing 768 Total 13,580

Source: CNBV

Municipalities with Regulated Financial Institutions (IFR) Table 3.25 shows the percentage of municipalities with the presence of branches per type of institution and per municipal category. It is interesting to note the presence of Cooperatives at rural municipalities, covering 5% which it equivalent to 35 municipalities.

Table 3.25 Percentage of municipalities with branches per category and per type of institution

Classification of municipalities
Institutions Total municipalities Commercial Bank State-owned Bank Cooperatives Micro Financing Total Municipalities with access 2,456 802 33% 417 17% 450 18% 311 13% 1,052 43% Rural 732 15 2% 6 1% 35 5% 3 0% 55 8% In transition Semi-urbans 678 107 16% 56 8% 72 11% 4 1% 193 28% 662 315 48% 143 22% 150 23% 74 11% 431 65% Urbans 309 290 94% 145 47% 146 47% 158 51% 298 96% Semimetropolis 50 50 100% 43 86% 33 66% 47 94% 50 100% Metropolis 9 9 9 7 9 9 DF 16 16 100% 15 94% 7 44% 16 100% 16 100%

100% 100% 78% 100% 100%

Source: CNBV

Only 8% of rural municipalities are covered by some sort of institution which offers financial services, 28% of transition municipalities have at least one branch of IFR and at the semi-urban municipalities the coverage of branches is of 69%. From the urban category, the percentage of municipalities with branches is above 96%, as can be seen in graph 3.26.

Table 3.26 Percentage of coverage of branches per type of municipality

96%

100%

100%

100%

65%

28%

8%

Rural

In transition

Semi-urbans

Urbans

Semi-metropolis

Metropolis

DF

Source: CNBV

It is important to point out that there are 11 urban municipalities with no branches at the end of March 2010. Such municipalities have more than 50,000 inhabitants, as is the case of the municipality of Chiln in Chiapas with 100,000 inhabitants and that only has four point of sale terminals. In table 3.27, the complete listing of such municipalities can be seen.

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Table 3.27 Urban municipalities without branches (greater than 50,000 inhabitants)
State
Chiapas Chiapas Chiapas Chiapas Chihuahua Mxico Morelos Puebla Sonora Veracruz Yucatn

Municipality
Chamula Chiln Salto de Agua Tila Guadalupe Y Calvo San Jos del Rincn Ayala Acajete Etchojoa Ixhuatln de Madero Kanasn

Population
72,178 109,402 57,525 66,948 53,819 88,370 70,179 55,068 55,184 50,596 61,405

Adult population
42,897 62,013 35,195 40,776 32,426 51,077 48,378 34,605 38,604 33,132 42,552

Branches
0 0 0 0 0 0 0 0 0 0 0

ATMs
0 0 0 0 0 1 0 1 1 0 3

POS
0 4 6 2 14 0 16 9 18 0 57

Source: CNBV

Adults with access possibility In order to estimate the number of adults with access possibility, first the municipalities with presence of branches of any institution are considered and then the number of adults living in those municipalities is obtained. In this way we are able to determine the number of adults that can access financial services, as the presence of a branch of a Regulated Institution eases the access. In Mexico there are 76.7 million adults, 10% of them has no possibility to access financial services (see table 3.28). At the rural municipalities it can be observed that only 11% of the adults have the chance of accessing a branch. In transition municipalities there are 68% of adults with no access to financial institutions. From urban municipalities, nearly every adult can access a financial service.

Table 3.28 Total in the country with access possibility (million of adults)
Classification of municipalities
Institutions Total municipalities Commercial Bank State-owned Bank Cooperatives Micro Financing Total Municipalities with access 76.7 65.6 86% 50.3 66% 41.2 54% 50.7 66% 68.6 90% Rural 1.2 0.04 4% 0.02 1% 0.08 7% 0.01 1% 0.14 11% In transition 0.8 0.4 0.5 0.0 1.4 4.4 18% 10% 12% 1% 32% Semiurbans 12.1 6.6 54% 2.9 24% 2.9 24% 1.7 14% 8.6 71% Urbans 22.6 21.8 97% 12.7 56% 12.1 54% 13.5 60% 22.1 98% Semimetropolis 20.2 20.2 100% 18.2 90% 14.1 70% 19.2 95% 20.2 100% Metropolis 9.4 100% 100% 77% 100% 100% DF 6.9 6.9 100% 6.7 98% 4.2 61% 6.9 100% 6.9 100%

9.4 9.4 7.2 9.4 9.4

Source: CNBV

The impact of banking agents in access As seen in chapter one, the new regulation on banking agents will allow widening the potential of financial institutions to offer services and products via new distribution channels. With this new regulation a considerable increase in access points to financial services is expected. The Federal Government is committed to promote such a new figure; however, its success relies in several factors, mainly business models executed by the banking institutions. Expected impact Until this month of March, the CNBV made a list and gathered information on the different organizations willing to establish business models of banking agents. In order to develop a preliminary exercise of the potential impact on the access to financial services, the information available in December 2009 was taken and this refers to the location of stores/points of support of such banking agents in a municipality level and it was integrated to the database of branches. Therefore, we can see the impact they will have in a medium term. All the organizations are grouped into five categories, three of them directly related to the government: 1) 2) 3) 4) 5) Self-service stores with big surfaces: supermarkets Convenience stores: small stores and pharmacies Telecomm Diconsa41 Gas Stations

41

Only 25% of their stores are considered, as not all stores have nowadays the infrastructure required to operate as banking agents.

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In graph 3.29, the potential impact of these five categories of banking agents can be appreciated. Taking into account the actual financing institutions, 42.8% of municipalities have branch presence of some kind of institution. With the new banking agents, the number of potential municipalities with a point of contact could increase up to 80%. The impact of State regulated networks as Telecomm, Diconsa and the Gas Stations can be observed, as their presence in most of the municipalities of the country is higher.

Table 3.29 Potential impact of banking agents

1,600 1,384

90% 80%

Number of municipalities

1,400 1,200 1,000 802 800 33% 600 417 400 200 Commercial State-owned Bank Bank PSLI Self-service Convenience Telecomm stores with stores big surfaces Diconsa Gas Stations 38% 603 405 536 615 43% 43% 46% 1,169 67% 75% 80%

Percentage of municipalities

70% 60% 50% 40% 30% 20% 10% 0%

Municipalities with access Cummulative percentage of municipalities with access

Source: CNBV

It can be seen that the access points, considering the Commercial Bank, the State-owned Bank and the PSLI add up to 13,580 access points; if this is added to potential banking agents, namely, convenience stores and supermarkets, as well as the State regulated networks, it is clear that adding such access points of banking agents together with the branches could amount to more than 40,000 (see graph 3.30).

Table 3.30 Impact of banking agents attention points

17,191 13,580

11,072

Financial institutions

Self-service and convenience stores

State regulated networks

Source: CNBV

On the Third Report of Financial Inclusion the first indicators of banking agents will be included (with information of regulatory reports), among them, the contact points could be observed, and also the municipalities with the presence of banking agents and the number of adults with access possibilities, among others.

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USAGE INDICATORS
The indicators of use allow us to know the demand of financial services, thanks to them we can observe which products are the ones that are used the most and in which areas they are offered. In this chapter only the Multiple Banking and the Development Banking will be considered because in the case of the Popular Savings and Loan Institutions (EACP, as in the Mexican abbreviation) we find ourselves still in the process of integrating the indicators at municipal level. All the information has been taken from the regulatory reports that are sent to the CNBV by the financial institutions with numbers from March of 2010.

Products of acquisition and credit In the same way that the previous report was presented, the usage indicators are divided in two: 1) income: checking accounts, savings accounts, payroll accounts, secure deposits and debit cards, and 2) credit: credit cards. In regards to the acquisition accounts, the debit card is the representative product and on this the analysis will be developed in the present chapter. For the credit indicators the credit cards will be used as the representative product. In the first part of the chapter, the indicators for the acquisition and credit products are represented at national, regional, state and municipal levels42. Below, a more detailed study is presented on the access and use of the different products, both in rural as in transition municipalities. Additionally, this chapter will include information generally related to the transactions made with debit and credit cards in ATMs and point of sale terminals. In the case of the EACP, some indicators of municipal credit related to the population are presented. Presented at the end of the section is an analysis made with information provided by the Bank of Mexico of the flow of family remittances and it concludes with a revision about the use of Internet. National indicators In the chart 4.1 we observe the summary of the demographic indicators where the credit card product is the one that is used the most, with 720 cards per each 1,000 adults; this represents an increase of 10% compared to June of 2009 in which this same indicator was 652. Chart 4.1 Numbers of contracts per each 1,000 adults
720

413 346 353

307

44

Checking accounts

Saving accounts Payroll accounts Term Deposits

Debit card

Credit card

Source: CNBV
42

Within the state analysis will analyze the relationship between the presence of financial infrastructure and use of certain products.

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In regards to the credit cards, the demographic indicator adds up to 307 cards per 1,000 adults, which represents a decrease of 12% from June 2009. In the following sections we can see in more detail (in state and municipal levels) the differences in regards to the first report published in June 2009. Regional indicators The regional analysis shows us a clear concentration of credit cards in the center of the country influenced principally by Mexico City, which has an indicator of more than 2,000 credit cards per adult, increasing the regional average by 688 cards. However, the same does not apply with debit cards, which are better distributed within the regions (see graph 4.2). Chart 4.2 Number of contracts per 1,000 adults Debit card
834
682 522 861

815

National Average = 720

Center

Central-West

Northeast

Northwest

South-Southeast

Credit card
688

National Average = 307 212 168

166 96

Center

Central-West

Northeast

Northwest

South-Southeast

Source: CNBV

If we analyze the totality of income products and credit cards we can observe how these are distributed within each region. For example, the Central region has the highest credit card usage compared to other regions due to the influence of Mexico City. The South-Southeast region has the highest number of savings accounts per 1,000 adults compared to the rest.

Graph 4.3 Numbers of contracts per 1,000 adults

9%

9%

7%

7%

24%
36% 29% 3% 2% 17% 15% 13% Center 18% 16% Central-Western Checking accounts Term Deposits
Source: CNBV

36% 2% 23% 14% 16% Northeast Saving accounts Debit card

36% 1% 22% 12% 22% Northwest Payroll accounts Credit card

36% 2% 18% 20% 17% South-Souteast

19%

The following table shows how in each region a different financial product prevails. In other words, in the South savings accounts prevail, while in the North checking accounts are the most used products. In the Northeast, payroll accounts prevail, in the West-Central region time deposits stand out and, in the Center region, the credit cards are used the most. In the case of debit cards, a similar use is seen in most of the regions except the central region.

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Chart 4.4 Products with the most use in each region

Region
South- Southeast Northwest Northeast Central-West Center
Source: CNBV

Product
Saving accounts Checking accounts Payroll accounts Term Deposits Credit cards

State indicators

Table 4.5 shows representative income and credit indicators per 1,000 adults in the federal entities, and are compared to the information presented in the first report. The information at state level of other income products can be consulted in Annex 3. When compared to the information of the first report, which shows numbers up to June 2009, we can emphasize some cases that seem relevant to us: for example, Tlaxcala is the only state in the country whose number of debit cards decreases by 8% in the time period mentioned. In all of the other states, the numbers increase, specifically in states like Nayarit, Nuevo Leon and Aguascalientes, by 35%, 25% and 19% respectively. In regards to credit cards, and in spite of the 12% reduction at national level, states like Oaxaca and Baja California Sur increase their indicator in 5% and 24%, respectively. On the other hand, all the other states, except Mexico City, decrease their numbers of credit cards, particularly Aguascalientes, Campeche and Colima by more than 50%, possibly due to a reduction in credit and an improvement in quality information. Table 4.5 also presents the ranking for the debit card and for the credit card and is ordered by highest to lowest according to the number of debit cards.

Chart 4.5 Number of contracts of credit cards and debit cards per 1,000 adults
Captacin
por ca da 1,000 a dul tos

Crdito
por ca da 1,000 a dul tos

Ranking

Estado Jun. 09 1,394 892 811 848 822 822 768 752 764 720 700 748 717 673 675 666 598 560 576 585 503 507 481 463 486 501 420 430 431 436 480 337 652 527

Tarjeta de dbito Mar. 10 1,515 1,118 1,094 1,007 876 865 849 837 834 833 801 801 745 733 714 709 634 603 599 598 553 548 538 522 522 516 485 479 474 471 443 398 720 641 Variacin 9% 25% 35% 19% 7% 5% 10% 11% 9% 16% 14% 7% 4% 9% 6% 7% 6% 8% 4% 2% 10% 8% 12% 13% 7% 3% 15% 11% 10% 8% -8% 18% 10% 22% Jun. 09 1,973 352 154 386 157 139 176 520 195 188 221 218 270 440 185 531 309 157 166 149 133 144 147 121 205 90 116 109 151 192 73 58 349 172

Tarjeta de crdito Mar. 10 2,009 245 134 165 194 113 145 318 182 183 198 122 208 131 153 249 187 126 143 104 107 106 129 100 124 60 68 106 114 113 65 61 307 139 Variacin 2% -30% -13% -57% 24% -19% -17% -39% -7% -3% -11% -44% -23% -70% -18% -53% -40% -20% -14% -30% -20% -26% -13% -17% -39% -33% -41% -3% -24% -41% -11% 5% -12% -19%

TDD

TDC

Distrito Federal Nuevo Len Nayarit Aguascalientes Baja California Sur Tabasco Quintana Roo Coahuila Tamaulipas Sinaloa Sonora Baja California Jalisco Campeche Chihuahua Colima Guanajuato Quertaro Morelos Zacatecas San Luis Potos Hidalgo Michoacn Mxico Durango Guerrero Chiapas Puebla Veracruz Yucatn Tlaxcala Oaxaca NACIONAL NACIONAL sin DF
Source: CNBV

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

1 4 15 11 7 23 13 2 10 9 6 20 5 16 12 3 8 18 14 27 24 26 17 28 19 32 29 25 21 22 30 31

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States like Baja California, Baja California Sur, Mexico City, Sinaloa and Tabasco has records of debit card contracts in 100% of its municipalities. On the other hand, states like Sonora, Oaxaca, Yucatan, Puebla and Tlaxcala record cards in less than 30% of their municipalities. In the case of credit cards, the behavior is very similar in regards to the coverage of municipalities by states, but, unlike the debit card, the average of municipalities with use of credit card is superior, reaching 65% from the total number of municipalities in the country. Table 4.6 and 4.7 show the percentage of municipalities in which debit and credit cards are used.

Chart 4.6 Percentage of municipalities with debit cards

100% 90%
80%

70% 60% 50% 40% 30% 20%

10%

National Average 38.4%

0%
Tamaulipas

Guanajuato

Zacatecas

Baja California

Aguascalientes

Campeche

Baja California Sur

Distrito Federal

Michoacn

Durango

Tabasco

Veracruz

Tlaxcala

Yucatn

Hidalgo

Jalisco

Mxico

Nayarit

Guerrero

San Luis Potos

Total general

Quertaro

Chiapas

Quintana Roo

Source: CNBV

Nuevo Len

Chihuahua

Coahuila

Morelos

Oaxaca

Sinaloa

Colima

Sonora

Puebla

Chart 4.7 Percentage of municipalities with credit cards

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Aguascalientes Tabasco

Promedio Nacional 65%

Hidalgo

Jalisco

Guerrero

Tlaxcala

Nayarit

Sinaloa

Tamaulipas

Guanajuato

Zacatecas

Baja California

Quintana Roo

Baja California Sur

Distrito Federal

Total general

Quertaro

Yucatn

Coahuila

Morelos

Nuevo Len

Campeche

Michoacn

Durango

Chiapas

Mxico

Veracruz

San Luis Potos

Source: CNBV

Correlation between number of branches and ATMs with the use of products In graph 4.8 the relation between the financial infrastructure and the use of certain products is analyzed. As a result, we find that a clear correlation exists between both; for example, the number of debit cards and the number of ATMs present a positive correlation of 69%, in other words, the states with the most number of ATMs are the ones which present a higher number of debit cards. In the same manner, the relation between payroll accounts and ATMs is of 80%. In the case of credit cards, the correlation with the number of branches is 77%, which indicates that the greater the number of branches, the greater the number of credit cards distributed. As a result of this analysis we observe that the distance barrier can affect the use of financial products because, in populations where a branch does not exist, the use of the products is very limited. As it is shown in graph 4.7, the correlation between different numbers and the number of branches and ATMs is clearly positive. Because of this, we can conclude that the presence of infrastructure tends to increase the use of financial products and services.

90

Chihuahua

Oaxaca

Colima

Sonora

Puebla

91

Chart 4.8 Financial infrastructures and the usage of products

Branches per 10,000 adults
3.00 2.50 2.00
1.50 1.00 0.50 0.00 0 100 200 300 400 500 600 700 R = 68%

Checking accounts

Checking accounts per 1,000 adults

Branches per 10,000 adults

3.00 2.50 2.00

Credit cards

1.50
1.00 0.50 0.00 0 50 100 150 200 250 300 R = 77%

Credit card per 1,000 adults

ATM per 10,000 adults

10.00 8.00 6.00

Debit card

4.00 R = 69%
2.00 0.00 300 400 500 600 700 800 900 1,000 1,100 1,200

Debit card per 1,000 adults

ATM per 10,000 adults

10.00
8.00 6.00 4.00 2.00 0.00 0 100 200

Payroll accounts

R = 80%

300

400

500

600

700

800

Payroll accounts per 1,000 adults

Source: CNBV

Municipal-level indicators Chart 4.9 presents the summary of indicators used per 1,000 adults for each municipality. Unlike the first report, Mexico City is presented separately to avoid an over-estimation of the indicators, which, as clearly shown, its indicators are superior when compared to the other municipal categories. In the rural municipalities, both in transition and semi-urban, the indicators are much lower than the national mean. Because of this, there exists a potential market to increase the number of products, as, in many cases, they are populations of 30,000 and 50,000 inhabitants. Chart 4.9 Summary of usage indicators by type of municipality per 1,000 adults
Type of municipality Rural In transition Semi-urban Urban Semi-metropolis Metropolis DF NACIONAL Checkin accounts 24 95 123 322 431 449 635 346 Saving accounts 54 93 209 377 363 356 712 353 Payroll accounts 26 81 74 296 529 653 999 413 Term deposits 6 20 32 45 41 43 96 44 Debit card 75 107 251 652 875 935 1,515 720 Credit card 12 26 44 123 210 215 2,009 307

Source: CNBV

For the case of Mexico City, in the graph 4.10, we may observe that the districts that have the most participation in regards to the use of debit and credit cards are Cuauhtmoc, Benito Jurez and Miguel Hidalgo. Graph 4.10 Distribution of the usage of credit and debit cards in Mexico City
15% 6% 6% 7%

8%
30%

18%

39%

12%
12%

12% 36%

Cuauhtmoc Azcapotzalco lvaro Obregn Gustavo A. Madero

Benito Jurez Miguel Hidalgo Iztapalapa Otras

Cuauhtmoc

Miguel Hidalgo
Benito Jurez Otras

Source: CNBV

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Graphs 4.11 and 4.12 show the usage indicators for debit and credit cards within the delegations of Mexico City. In four of them, an indicator much higher than the national average may be observed for debit cards, of which its national indicator is 720, and as for credit cards, the national indicator is 307. Graph 4.11 Debit cards per 1,000 adults in Mexico City
7,216

4,050 3,936

3,635

1,321

National Indicator 720

908 868 763 731 656 648 443 438 359 299 249

Gustavo A. Madero

Cuauhtmoc

Benito Jurez

Magdalena Contreras, La

Venustiano Carranza

lvaro Obregn

Azcapotzalco

Coyoacn

Iztapalapa

Tlalpan

Miguel Hidalgo

Xochimilco
99

Iztacalco

Tlhuac

Source: CNBV

Graph 4.11 Credit cards per 1,000 adults in Mexico City

16,569 12,368

7,725

Cuajimalpa de Morelos

321

303

272

270

257

216

National Indicator 307

176 136 130 127 116 74

Cuauhtmoc

Gustavo A. Madero

Magdalena Contreras, La

Benito Jurez

lvaro Obregn

Venustiano Carranza

Coyoacn

Azcapotzalco

Iztapalapa

Tlalpan

Xochimilco

Miguel Hidalgo

Iztacalco

Source: CNBV

Cuajimalpa de Morelos

Milpa Alta

Tlhuac

Milpa Alta

Presence of the Commercial Bank in rural municipalities In this section, the presence of Commercial Bank branches is analyzed in rural municipalities and is compared with the number of debit card contracts. Like it is mentioned in the previous chapter, of the 732 rural municipalities of the country, at least 55 report one branch of a financial institution and only 15 of those have the presence of a Commercial Bank. The banks with the greater number of branches in the rural municipalities are Banorte, BBVA Bancomer and Banamex, as shown in graph 4.13.

Graph 4.13 Presence of the Commercial Bank in rural municipalities Distributions of branches in the country
15% 30%
14% 22%

% Rural

6%

17%
6%

1%
9% 29%

11%

2% 39%

Rurals
Semi-urbans

In transition
Urbans

Banamex Santander BBVA Bancomer

Inbursa Banorte Wal-Mart

Semi-metropolis
DF

Metropolis

Source: CNBV

Table 4.14 presents the information relative to the number of debit card contracts registered in the banking institutions with the presence of rural municipalities; BBVA Bancomer has 81% of these contracts and Banorte has 14%.

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Table 4.14 Participation of Commercial Bank in rural municipalities

Bank BBVA Bancomer Banorte Banamex Inbursa Wal-Mart Santander Total Municipalities with branch 4 7 2 1 1 2 15 Debit card contracts 58,980 9,945 2,110 1,390 81 0 72,506 % Debit card contracts 81% 14% 3% 2% 0% 0% 100%

The total number of municipalities doesnt necessarily coincide with the sum due to the fact that in some municipalities there is more than one institution. Source: CNBV

Presence of the Commercial Bank in municipalities in transition In Mexico, there are 678 municipalities in transition, 193 of which count with at least one branch of a financial institution and 107 with one branch of the Commercial Bank. In the municipalities in transition, Banamex has 27% of the branches, followed by BBVA Bancomer with 22%, Banorte with 11%, and Santander and HSBC with 10% each. This distribution is shown in graph 4.15. Graph 4.15 Banks with presence in transition municipalities Distributions of branches in the country
15%
30% 14%
5%

% In transition

3%

11%

27%

1%

2%
9%

10% 10% 22% 11%

29%
Banamex BBVA Bancomer Santander Bancoppel

Rurals
Semi-urbans

In transition
Urbans

Banorte HSBC

Semi-metropolis
DF

Metropolis

Banco Azteca

Otros

Source: CNBV

Of the debit card contracts given in the transitional municipalities, BBVA Bancomer occupies first place with 35%, Santander with 18% and Banorte and HSBC both with 12% of the contracts reported. This can be seen in chart 4.16. Graph 4.16 Participation of Commercial Bank in transition municipalities
Bank BBVA Bancomer Santander Banorte HSBC Banamex Bancoppel Banco Azteca Ahorro Famsa Inbursa Banco del Bajo Scotiabank Inverlat Wal-Mart Compartamos Total Municipalities with branch 38 13 19 17 29 4 5 3 1 3 1 3 4 107 Debit card contracts 154,593 78,331 52,516 52,240 45,269 23,473 12,930 8,806 3,595 3,481 996 89 N. A. 436,319 % Debit card contracts 36% 18% 12% 12% 10% 5% 3% 2% 1% 1% 0% 0% N. A. 100%

The total number of municipalities doesnt necessarily coincide with the sum due to the fact that in some municipalities there is more than one institution. N.A. = Not applicable Source: CNBV

The role of the Cooperatives in credit placement This section presents the first analysis about the impact that the Cooperatives have in the financial system and, particularly, in the use of credit products. As it can be seen in graph 4.17, the greater part of the Cooperatives is found in the Central-West area of the country, where 56% of the 1,029 Cooperative branches that exist all around the country are found. Among the states that have a greater presence of Cooperatives is Guanajuato with 193 branches, Jalisco with 167, Michoacn with 99 and Oaxaca with 74 branches. Baja California is the only state in the country that does not report any Cooperative branches.

96

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Graph 4.17 Cooperative branches per region

581

213 108
107 20 Central-West
Source: CNBV

Center

Northeast

Northwest

South-Southeast

The Cooperative branches are concentrated in the urban, semi-urban and semi-metropolis municipalities. However, due to the adult population that lives in rural municipalities, it may be observed that the demographic indicator of the number of branches per 10,000 adults is greater in such municipalities. Even if these indicators are of Access, the entire analysis of Cooperatives is presented in one section for a better comprehension of its impact on Financial Inclusion. Graph 4.18 Cooperative branches per type of municipality

a) Number of branches
360

216

222

81 43

97

10 Rural In transition Semi-urban Urban Semi-metropolis Metropolis DF

Source: CNBV

b) Branches per 10,000 adults

0.36

0.19

0.18

0.16 0.11 0.10

0.01 Rural In transition Semi-urban Urban Semi-metropolis Metropolis DF

Source: CNBV

There are three credit products that manage the Cooperatives: commercial credit, consumer credit and housing credit. Graph 4.19 presents the distribution of contracts of each one of the products, segmented by the type of population. The majority of the commercial credits are found in the semi-urban and urban municipalities, while the consumer and housing credits are mostly used in the urban and semi-metropolis areas. Graph 4.19 Distribution of Cooperative contracts by type of municipality
Commercial
0% 3% 17% 4% 9% 27%

Consumer
0%

3% 4% 17%

13%

26%

40%

37%

Housing
0%

Rural
1%

6% 33%

4% 16%

In transition Semi-urban Urban Semi-metropolis

40%

Metropolis DF

Source: CNBV

98

99

The consumer credit and the commercial credit are the most used products in the rural municipalities. The housing credit is used more in the urban and semi urban areas. These conclusions can be seen in graph 4.20, which shows the number of contracts of each credit product per 1,000 adults. It is important to emphasize that a good portion of the housing credits that the Cooperatives give are not for acquiring realty but rather for adaptations, amplifications and house improvements. Graph 4.20 Number of contracts of Cooperatives per 1,000 adults a) Commercial
3.0

2.1

2.3 1.8

0.9 0.4

0.0 Rural In transition Semi-urban Urban Semi-metropolis Metropolis DF

b) Consumer
36.9 29.0 24.2 17.4 22.7
24.7

0.9

Rural

In transition

Semi-urban

Urban

Semi-metropolis

Metropolis

DF

c)

Housing
1.1

1.0

0.8
0.6

0.6 0.3

0.0 Rural In transition Semi-urban Urban Semi-metropolis Metropolis DF

Source: CNBV

In table 4.21, a summary of the number of branches and credit contracts is presented with its respective indicators. The state of Colima stands out in regards to the number of consumer credits because, given its population, it presents an important indicator.

100

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Table 4.21 Credits granted by Cooperatives segmented by branch and by state

Number of contracts State Guanajuato Jalisco Michoacn Oaxaca Quertaro Colima Nuevo Len Veracruz San Luis Potos Yucatn Chihuahua Coahuila Guerrero Puebla Zacatecas Nayarit Durango Campeche Sinaloa Aguascalientes Morelos Mxico Quintana Roo Tamaulipas Hidalgo Distrito Federal Tabasco Sonora Baja California Sur Chiapas Tlaxcala Baja California NATIONAL NATIONAL WITHOUT DF Branches 193 167 99 74 61 37 34 34 33 31 23 22 20 20 20 19 16 14 14 13 13 12 12 12 11 10 6 4 2 2 1 0 1,029 1,019 Commercial Consumer 7,707 11,243 40,980 5,136 4,088 9,737 341 1,220 3,927 1,951 0 67 2,785 2,641 236 2,519 3,961 814 984 697 1 462 842 9 739 1 0 0 0 0 1 0 103,089 103,088 484,607 259,038 120,722 141,438 55,513 44,025 62,073 73,760 73,142 15,821 57,179 19,868 26,298 43,361 45,585 56,651 40,723 3,114 10,151 25,734 47,471 16,877 3,025 22,524 3,019 6,168 793 1,683 312 574 2,516 2 1,763,767 1,757,599 Housing 12,121 5,242 23,284 427 10,424 94 1,842 214 2,811 759 62 134 40 727 140 501 65 145 50 580 20 155 154 40 591 139 16 51 0 13 8 0 60,849 60,710 Access indicator Branches per 10,000 adults 0.56 0.33 0.36 0.30 0.50 0.84 0.10 0.07 0.19 0.22 0.09 0.12 0.09 0.05 0.21 0.27 0.15 0.25 0.07 0.17 0.11 0.01 0.13 0.05 0.06 0.01 0.04 0.02 0.05 0.01 0.01 0.00 0.13 0.15 Usage indicator Total contracts per 1,000 adults 145 55 67 60 58 123 20 14 46 13 24 11 14 12 48 86 42 7 6 35 39 2 4 10 3 1 1 1 1 0 3 0 25 28

Source: CNBV

Transactions In this report, we begin to analyze the credit and debit card transactions at a national level taking the information from the Bank of Mexico. For the third report, we hope to have the information at a state and municipal level. The analysis that is presented below is divided into two parts. On one hand, we have the number of transactions made in ATMs, including debit cards as well as credit cards, and their indicator per 1,000 inhabitants. On the other hand, we have the number of transactions made in point of sale terminals, which are also separated by credit and debit cards and their indicator per 1,000 inhabitants. Transactions in ATMs at a national level The demographic indicator of the transactions in ATMs can be observed in the graph 4.22. This indicator is calculated per 1,000 inhabitants43 and it represents the number of withdrawals made in one trimester. In the case of debit card withdrawals, the indicator has increased at an important rate from 2,300 transactions per 1,000 inhabitants to 3,000 in a period of five years. In the case of the credit cards, it can be observed that people use this service less as time goes on. Graph 4.22 Quarterly tendencies of the total number of transactions in ATMs per 1,000 inhabitant
a) Debit card
3,300
3,100 2,900

2,700
2,500 2,300 2,100

1,900
1,700
T1 2005 T2 2005 T4 2005 T1 2006 T2 2006 T1 2007 T2 2007 T1 2008 T2 2008 T3 2008 T2 2009 T3 2009
T3 2005 T3 2006 T4 2006 T3 2007 T4 2007 T4 2008 T1 2009 T4 2009 T1 2010

Source: Bank of Mexico

102

103

b) Credit card

140 120 100 80 60 40

20 T2 2005 T3 2005 T1 2006 T3 2006 T1 2007 T2 2007 T4 2007 T2 2008 T4 2008 T1 2009 T3 2009 T1 2010
T1 2005 T4 2005 T2 2006 T4 2006 T3 2007 T1 2008 T3 2008 T2 2009 T4 2009

Source: Bank of Mexico

It can be observed that each year the number of transactions in ATMs has increased compared to the previous year, except in 2009, of which in the second and last trimester the numbers were similar to 2008 (see graph 4.23). For the first trimester of 2010, we already observe an increase of 3.8% compared to the previous year, adding to 325 million transactions. The graph also shows the seasonality in regards to the number of transactions because, in the first trimester of each year, the number of operations decreases compared to the trimester before October-December. This is due to the fact that, in the last few months, the operations increase in the substantial manner for the holiday period.

43

Compared to the other indicators, this one is calculated based on the number of inhabitants due to the fact that there is no annual historical information of the number of adults.

Graph 4.23 Quarterly tendencies of the total number of transactions in ATMs

360,000,000 340,000,000 320,000,000 300,000,000 280,000,000 260,000,000 240,000,000

220,000,000 Q1 Q2 Q3 Q4

2005
Source: Bank of Mexico

2006

2007

2008

2009

2010

In graph 4.24 the number of transactions per type of card may be seen. It is important to highlight that the percentage of transactions made with credit cards has been decreasing each year, from 4.2% in 2005 to 1.8% in the first trimester of 2010. This could be due to the commissions charged for cash provision and the credit restrictions since 2009. Graph 4.24 Number of transactions in ATMs per type of cards
350,000,000

330,000,000
310,000,000 290,000,000 270,000,000

250,000,000
230,000,000 210,000,000 190,000,000 170,000,000

T3 2005

T4 2005

T1 2006

T2 2006

T3 2006

T1 2008

T2 2008

T3 2008

T4 2008

T1 2009

T1 2005

T2 2005

T4 2006

T1 2007

T2 2007

T3 2007

T4 2007

T2 2009

T3 2009

T4 2009

Debit

Credit

Source: Bank of Mexico

104

T1 2010

105

From 2006 a consistent trend may be observed of withdrawals made with debit and credit cards but, from the first trimester of 2009, the average transactions with debit cards have been increasing, while a marginal decrease may be perceived in relation to the average use of credit cards. This can be seen in graph 4.25.

Graph 4.25 Average withdrawals per transaction per type of card

1600
1500 1400 1300 1200

1100
1000

T4 2005

T1 2006

T2 2006

T3 2006

T3 2007

T4 2007

T1 2008

T2 2008

T2 2009

T3 2009

T4 2009

Debit

Credit

Source: Bank of Mexico

Nationwide transactions in point of sale terminals In this section, the transactions made with debit and credit cards in point of sale terminals are analyzed. As we can observe in graph 4.26, the number of debit card transactions has increased considerably until reaching, in the first 2010 trimester, 1,200 transactions per 1,000 inhabitants, which means an increase of 20% in the last year. In the case of credit cards, this indicator has presented a decrease in relation to the highest levels registered in 2008. In this area last year, the indicator remained in between 800 and 900 transactions per 1,000 inhabitants per trimester.

T1 2010

T1 2005

T2 2005

T3 2005

T4 2006

T1 2007

T2 2007

T3 2008

T4 2008

T1 2009

Graph 4.26 Quarterly tendency of the number of total transactions in point of sale terminals per 1,000 inhabitants a) Debit card
1,200 1,000 800 600 400

200
-

T2 2005

T3 2005

T1 2006

T3 2006

T1 2007

T2 2007

T4 2007

T2 2008

T4 2008

T2 2009

T3 2009

Source: Bank of Mexico

b) Credit card
1,000 900 800 700

600
500 400 300 200

100
-

T1 2005

T4 2005

T1 2006

T3 2006

T4 2006

T2 2007

T3 2007

T1 2008

T2 2008

T4 2008

T1 2009

T3 2009

T4 2009

T2 2005

T3 2005

T2 2006

T1 2007

T4 2007

T3 2008

T2 2009

Source: Bank of Mexico

The number of total transactions made in point of sale terminals has increased continuously every year, as shown by graph 4.27. During 2009, when the transactions in cashiers decrease, the ones made in POS terminals maintain a lower growth rate compared to other years. In the first 2010 trimester a recovery can be perceived, as the transactions have an increase of 12% in relation to the same period the previous year.

106

T1 2010

T1 2010

T1 2005

T4 2005

T2 2006

T4 2006

T3 2007

T1 2008

T3 2008

T1 2009

T4 2009

107

Graph 4.27 Quarterly tendency of the total number of transactions in POS terminals
250,000,000 230,000,000 210,000,000 190,000,000

170,000,000
150,000,000 130,000,000 110,000,000 90,000,000 70,000,000 50,000,000 Ene-Mar Abr-Jun Jul-Sep Oct-Dic

2005

2006

2007

2008

2009

2010

Source: Bank of Mexico

In opposition to what happens with the use of a credit card in the cashiers, the POS terminals represent at present 41% from the total amount of transactions; however, a significant decrease related to the 2007 levels, where such indicator represented more than 50% of the total transactions, can also be perceived (see graph 4.28).

Graph 4.28 Number of transactions in POS terminals per card type

260,000,000
42%

220,000,000
50% 50% 49% 50%

46% 49% 44%

44%

44%

41%

180,000,000 140,000,000 100,000,000 60,000,000 20,000,000

T1 2005 T2 2005
49% 50% 49% 48% 51% 53% 53%

52%

51%

50%

T1 2008

T2 2008

T3 2008

T4 2008

T1 2009

T2 2009

T3 2009

T4 2009

T3 2005

T4 2005

T1 2006

T2 2006

T3 2006

T4 2006

T1 2007

T2 2007

T3 2007

T4 2007

Debit

Credit

Source: Bank of Mexico

T1 2010

Regarding average transactions, the use of credit cards in point of sale terminals is quite above the one of debit cards, reaching more than $800 in average, while the former has remained constant over time in $500.

Graph 4.29 Average transaction per card type

900

800
700

600
500

400
300

200
T1 2005 T3 2005 T4 2005 T2 2006 T4 2006 T1 2007 T2 2007 T3 2007 T1 2008 T3 2008 T4 2008 T2 2009 T4 2009 T1 2010
T2 2005 T1 2006 T3 2006 T4 2007 T2 2008 T1 2009 T3 2009

Debit

Credit

Source: Bank of Mexico

Family remittances44 This section presents a first effort to show the information concerning remittance transfers in the country. In the future, indicators will be made to measure remittance flows in relation to the population and analyze its impact on Financial Inclusion. The amount of family remittances45 entering Mexico has become a significant source of resources for the country and one transfer among private users strengthens family consumption, the reason for which its importance has risen increasingly in Mexican economy. Although nationwide remittances represent 2.3% of GDP, in 2008, for some states family remittances have a significantly higher participation. Particularly, in 2008, the most recent year for which there is information about state GDP, in some entities the remittance income was higher to the national GDP percentage. In regard to remittance income as a percentage of state GDP, Michoacn stands out with 9.2%, Oaxaca with 9.0%, Guerrero with 8.9% and Zacatecas with 8%.
44

45

We are grateful for the collaboration of Bank of Mexico in the elaboration of this section Remittance and family remittance is used indistinctly.

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Graph 4.30 Family remittance per state Million Dollars in 2009

Michoacan Jalisco
Puebla Oaxaca Mexico City (D.F.) San Luis Potosi Zacatecas
2,133 (10.1) 1,945 (9.2) 1,716 (8.1) 1,715 (8.2) 1,305 (6.2) 1,294 (6.1) 1,204 (5.7) 1,149 (5.4) 981 (4.6) 737 (3.5) 631 (3.0) 606 (2.9) 570 (2.7) 542 (2.6) 458 (2.2) 424 (2.0) 410 (1.9) 381 (1.8) 364 (1.7) 348 (1.6) 329 (1.6) 299 (1.4) 285 (1.3) 281 (1.3) 257 (1.2) 246 (1.2) 173 (0.8) 117 (0.6) 106 (0.5) 87 (0.4) 57 (0.3) 33 (0.2)

As a percentage of GDP in 2008

Michoacan Oaxaca Guerrero Zacatecas Nayarit Guanajuato Hidalgo Morelos Tlaxcala Puebla Chiapas San Luis Potosi Colima Durango Veracruz Jalisco Aguascalientes National Mexico Sinaloa Queretaro Tamaulipas Chihuahua Sonora Baja California Coahuila Yucatan Distrito Federal Quintana Roo Baja California Sur Nuevo Leon Tabasco 0 9.2 9 8.9 8
5.9 5.8 5.6 5.5 5.2 4.3

Sinaloa Chihuahua Queretaro Baja California Sonora Tlaxcala Colima Yucatan Campeche 0

4 3.7 3.5 3.4 3.2 2.9 2.9

2.3 2.2 2.2 2.2

1.4 1.4 1.2 1.1 0.9 0.9 0.6 0.6 0.6 0.4 0.4 0.1 2 4 6 8 10

500

1,000

1,500

2,000

2,500

*The numbers in parentheses correspond to the percent participation rate of each state in total revenue remittance. Source: Own elaboration with Bank of Mexico data.

The family remittance flows represent an opportunity to take advantage of the transactional character of the same to impulse financial services and products that are timely, safer and more efficient. Nevertheless, for some entities with high remittance flows, especially Guerrero, Oaxaca and Veracruz, it may be observed that the banking infrastructure is limited, due to the fact that the number of branches per 10,000 adults indicator is below the national average. This situation reduces significantly the potential linkage between the flows and the financial services.

Graph 4.31 Cumulative income distribution from family remittance and demographic indicators of access 4.31a Cumulative income per family remittance in millions of dollars in 2009

Range High Flow ( > US$ 900 Million) Medium Flow ( US$ 300 US$ 900) Low Flow ( < US$ 300 Million)
Average income: US$ 662 millions per State.

Source: Elaborated with information from the Bank of Mexico

4.31b Branches per 10,000 adults (Commercial Bank and State-owned Bank) in 2009

Range High ( > 1.62 Branches per 10,000 adults) Medium ( 1.20 1.62 Branches per 10,000 adults) Low ( < 1.20 Branches per 10,000 adults) Average State-level access indicator : 1.47 Bank Branches per 10,000 adults.

Source: CNBV

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The importance of family remittances According to the information of the National Survey of Income and Household Expenditure of 2008, 5.9% of country households receive remittances, and the contributing proportion to the total income of the households that receive them is of 37.8% in average. However, it should be emphasized that the proportion of households that receive remittances is higher in the poorer sectors of the population and, at the same time, these resources represent a larger proportion of their income. In effect, 7.3% of the households of lower income (decile46 of lower income) receive remittances, and these represent 55% of their total current income, while only 3.5% of the households of higher income levels (the highest decile) receive remittances, which are equivalent to 11.9% of their total income (graph 4.32). Graph 4.32 Percentage of families that receive remittances and their participation in the monetary current income Families that receive remittances by decile Percentage
X
3.5

Remittance participation in current monetary income of household that receive them Percentage
X IX National Average 37.8
21

National Average 5.9

4.8 5.2 4.5
6.7

11.9

IX VIII VII
VI

VIII

24.9

VII VI V
7.0 6.7
7.5

29.7

33.4

V IV III II
I

6.1

39.5

IV
III
40.6

45

II I

46.3

7.3

55

Source: National Survey of Income and Household Expenditure of 2008, INEGI

46

The deciles are calculated considering both households that receive remittances and those who dont; the households are sorted in deciles according to their total quarterly current income; and the participation of remittances in the income of the households that receive them is calculated as the income ratio from other countries in relation to the monetary current income.

Family remittances and Financial Inclusion The relationship between family remittances and the banking sector is important for the potential that the intermediation of these flows may have to maximize its impact on development. There are at least two ways of linking remittances in the financial sector: 1) As a vehicle of entry to the financial system through the opening of deposit accounts (either via bank accounts or another authorized financial institution) to use them as transactional accounts of remittance, and 2) As the possibility of offering additional financial services both to the remittance senders and their beneficiaries. A greater access to financial services allows the reduction of transfer costs for the senders and receivers of remittances. When increasing the security of the remittance delivery it becomes possible to create assets through saving and to leverage the resources of the remittances through credit, as well as the opportunity of smoothening the flows with micro insurances in case of any unexpected events. In the graph 4.33, it can be observed that states like Oaxaca and Yucatan, which receive important flows of remittances, have few savings accounts per 1,000 adults47.

47

One of the most important drivers to Financial Inclusion through the delivery and reception of remittances in Mexico, and in other regions of Latin America, is the Multilateral Investment Fund (MIF), international organism linked to the Inter-American Development Bank (IDB). In the last years it has developed various projects in Latin America to promote this end. http://www.iadb.org/mif/home/

112

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Graph 4.33 Average distribution of family remittance and use indicators of saving accounts (2009) a) Average amount of delivery per remittance operation in 2009

Range High ( > US$ 340 per remittance) Medium ( US$ 307 US$ 340 per remittance) Low ( < US$ 306 per remittance)

Average Flows: US$ 317 per remittance

Source: Elaborated with information from the Bank of Mexico

b) Saving accounts per thousand adults in 2009

Range High ( > 1.62 Branches per 10,000 adults) Medium ( 1.20 1.62 Branches per 10,000 adults) Low ( < 1.20 Branches per 10,000 adults) Average State-level access indicator : 1.47 Bank Branches per 10,000 adults.

Source: CNBV

Amount of remittances and number of transactions In table 4.34, the amount data, the number and average of remittances for 2009 and for the first months of 2010 may be observed. It also shows that the average remains constant at around 317 dollars. From April 2010 a slight increase in remittances may be seen again, as compared with the same month in 2009 (see table 4.34). Table 4.34 Income per family remittances
2009 Annual Remittances amount Average remittance
1/ 2/

2010 Jan-Mar 4,819 15,377 313 Apr 1,784 5,497 325

21,181 66,797 317

Number of remittances
3/

Annual percentage changes 2009 2010 Annual Jan-Mar Apr Remittances amount1/ Number of remittances Average remittance
3/ 2/

-15.7 -8.0 -8.4

-12.0 -3.9 -8.4

0.2 -0.1 0.3

1/ Million dollars; 2/Thousands of operations; 3/Dollars. Source: Bank of Mexico

Annex 5 presents additional issues concerning remittances, such as the cost of transactions, the instruments used for the delivery of these, the viability for linking remittance flows to potential networks of traditional agents and mobile telephony, the family remittance corridors between Mexico and the United Stated and the Mexican Consular Identification cards. Banking through Internet This section presents an initial effort to identify the opportunities that the Internet represents for the use of financial services. For this, the section is divided in three parts: 1) the universe of Internet users in Mexico, 2) Bank usage via Internet and 3) electronic commerce. Universe of Internet users At the end of 2009 the number of internauts48 (internet surfers) over six years of age reached 30.6 million, from which more than 80% are concentrated in urban areas49, as it may be seen in graph 4.35. Each year the number of Internet users increases in an important way. In the last year the growth was close to 11% compared to 2008.
48

According to the AMIPCI (as in the Mexican abbreviation), the term internaut refers to those who surf through the Internet network. 49 Data provided by CONAPO, INEGI, Target Group Index (by Kantar Media) and the AMIPCI.

114

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Graph 4.35 Universe of Internet users a) Internet Users in Mexico (millions)

30.6
27.6 23.9 20.2 17.1

2005

2006

2007

2008

2009

Source: Mexican Internet Association, AMIPCI

b) Internet surfer population (millions)

25.6

Urban areas

Not urban areas

Based on a survey made in urban areas50, from this total universe of Internet surfers, the age group that had the highest growth among Internet users goes from 34 to 44 years of age, which shows in graph 4.36, as is the population percentage that uses Internet services per socioeconomic level (SEL).
50

TGI survey (Target Group Index) that is annually applied to 12,300 interviewed people in between 12 and 64 years of age in 28 cities with more than 500 thousand inhabitants. The socio-economic level calculated by TGI is based on the algorithm AMAI (Mexican Association in Market Research Agencies and Public Opinion) 13x6.

Graph 4.36 Classification of Internet surfers by age and SEL a) Internet surfers penetration by age
12-19 20-24 25-34 38% 35% 31% 24% 23% 68% 63% 61% 55%

35-44
45-54 55-64 12% 10%

19%

0%

10%

20%

30%
2009

40%
2008

50%

60%

70%

80%

Source: TGI survey (Target Group Index), AMIPCI

b) Internet surfers penetration by SEL

ABC+ 48% 43% 37% 71% 63%

D/E 20%

33%

D+

20%
0% 10% 20% 30% 2009 40% 2008 50% 60% 70% 80%

Source: TGI survey (Target Group Index), AMIPCI

116

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Graph 4.37 Mexican Internet Association (AMIPCI)

The Mexican Internet Association (AMIPCI) was founded in 1999 with the mission of boosting the Internet economy in Mexico. It currently has more than 200 members who have influenced the development of the Internet Industry in our country. For the development of their studies and reports, the AMIPCI works closely with major market research agencies, government agencies, educational institutions and even with information provided by affiliated businesses. For more information visit the website http://www.amipci.org.mx/.

Source: AMIPCI

Bank usage via Internet It is estimated that, from the total number of Internet surfers over 18 years of age (20.4 million users) in 2008, 72% (14.7 million users) handles some kind of banking product. Nevertheless, from this total amount only 12.2% (1.8 million users) uses the Bank via Internet51, as it may be seen in graph 4.38. From the total number of users of the financial system that make use of the Bank via Internet, almost 37% uses this service two or three times a week.

51

Figures obtained from AMIPCIs study on Banking via Internet in Mexico 2009, elaborated with the support of Safety Pay and the Mexican Bankers Association. For such study, an online survey about the usage of banking products via Internet was designed, which was applied to 1,825 adults per rage ages (from 18 to 65 years of age), gender and socio-economic level. Additionally, information from the TGI Kantar enterprise was used as survey control. The analysis of the online survey was made by the Elogia enterprise.

Graph 4.38 Bank Users via Internet

12%

28%

72%

88%

Do not handle a banking product Handle a banking product Use the Bank via Internet
Do not use the Bank via Internet

Number of Internet and Bank users (millions)

Internet users over 18 years of age Users that handle a banking product Bank users via Internet

Reasons for using the Bank via Internet

20.4
32%

14.7

56% 12%

1.8

Personal

Work

Both

Source: Study on Banking via Internet in Mexico, AMIPCI, 2008

It is important to mention that the activity of the Bank users via Internet consists mainly on checking their account balances, as it appears on graph 4.39.

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119

Graph 4.39 Main activities made when using the Bank via Internet

Checking account balances Transfers between my accounts Service payment Transfer to third parties Transfers to accounts in other banks Credit card payment Refill purchase of airtime for cell phone or Federal taxes payment Purchasing goods and services Local taxes payment General content and information that the bank Financial simulators IMSS / INFONAVIT payment Payroll payment / dispersion Investment management Product hiring

95% 58% 54% 48% 44% 37% 28% 22% 21% 18% 13% 11% 9% 8% 7% 7%

Source: Study on Banking via Internet in Mexico, AMIPCI, 2009

Electronic Commerce Electronic Commerce is defined by the studies of the Organization for Economic Co-operation and Development (OECD) as the process of purchase, sale or goods exchange, services and information via the communication network. In this way, electronic commerce is an additional channel in which transactions are made using debit and/or credit cards. In 2009 the Study of Electronic Commerce52 was published, where, apart from using the market information provided by the principal enterprises that make e-commerce53 in Mexico, an online survey was carried out to know the purchase habits of the Mexican Internet surfer.

52

Elaborated by AMIPCI sponsored by Visa and the information of Select. E-commerce is the exchange of goods and services made via Information and Communication Technologies, usually with the support of standardized platforms and protocols.
53

Thanks to the results of this analysis, we can gauge the evolution of electronic commerce in Mexico, the profile of Internet users who engage in this activity and the opportunities presents this new sales channel in our country. Chart 4.40 shows the evolution that has taken e-commerce in our country. This reached a figure of 1.768 million dollars in sales in 2008 and exceeds by a wide margin growth expectations. The percentages in graph 4.40 shows the increase in annual sales. Graph 4.40 Tendency of electronic commerce in Mexico (million dollars)
2,000
1,800 85%

90% 80%
70% 60%

1,600
1,400 1,200

78%
70%

1,000
800

51%
1,768

50% 40% 30%

600
400 200

955
209 2004

20% 10% 0%

315
2005

537

2006

2007

2008

Source: Study from Electronic Commerce in Mexico, AMIPCI, 2009

For 2009, it was estimated that the percentage of sales via Internet form enterprises that have physical and virtual presence would pass from 8% to 16%54, as it may be seen in graph 4.41.

54

B2C: Business to Consumer is the best known electronic business, and it refers to a company which sales its goods or services via Internet.

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Graph 4.41 Estimated sales via Internet for 2009

100%
80%

6%

8%

16%

60%
40%

94%

92%

84%

20% 0% 2007 Sales via other means 2008 Sales via Internet 2009

Source: Study from Electronic Commerce in Mexico, AMIPCI, 2009

It is interesting to highlight that the growth reported from the international sales and inside the Republic presents an increase of 180% and 14% respectively.

Graph 4.42 B2C sales14

100%
90% 80% 70% 60% 50% 40% 30% 4%

5%

14%

35%

44%

50%

61%

20% 10% 0%
2006 Metropolitan Area

51% 36%

2007 Inside the Republic

2008 International

Source: Study from Electronic Commerce in Mexico, AMIPCI, 2009 55

55

B2C: Business to Consumer

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FINANCIAL EDUCATION
AND CONSUMER

PROTECTION
Financial education and consumer protection are two essential elements to encourage the use of financial products and services, that is to say, to achieve an effective Financial Inclusion in the population. If an individual lacks or has a poor financial education, he will not have the tools to initiate, maintain or enhance patrimony or he could choose his basket of goods in an inadequate way, thus paying high commissions or using services that dont meet his needs to one hundred percent. Consumer protection is equally important because it seeks to put the suppliers and demanders of financial services in similar circumstances.

To achieve a successful Financial Inclusion, some institutions have made efforts to improve their services for the entry of new participants, which even guarantee the inclusion of mechanisms for clarifications and questions. For consumers who have not received an adequate attention from the institutions, the regulation provides protection mechanisms, which aim to prevent these users from losing interest in acquiring any financial product or service due to an unpleasant experience. In this Chapter, two components that support Financial Inclusion are explored for the first time, and a conceptual framework is presented for developing indicators to monitor the progress of these components. Financial Education As in the case of Financial Inclusion, so far there is no single definition of financial education. However, national efforts instrumented in recent years, and international experiences in the field, allow identifying common criteria and having a clear idea of what it is and what is its purpose. It can be said that financial education is a body of knowledge and tools that enable people to acquire skills and modify their conduct for making decisions about how to achieve their economic goals, and understand their rights and obligations as consumers of financial products and services. The available evidence shows that people who have little financial education are prone to face problems of over-indebtedness, to save in low proportions or nothing at all, to hire high-cost funding and to avoid adopting any retirement plans56. Financial education is a component that contributes to strengthening and consolidating the inclusion process. This training complements the efforts to promote a greater competition between institutions that results in better products and services, lower prices and in the decrease of asymmetric information between financial institutions and consumers. In Mexico, important changes have been legislated for greater transparency and information access on the characteristics, costs and commissions on financial products and services. For such transparency to achieve its objective on promoting greater competition among institutions, it must come accompanied by effective strategies on financial education and ensure that people can interpret information and therefore make better decisions. In the last six years, efforts related to financial education in the country have increased significantly. According to a study, initiatives developed by various institutions and agencies in
56

OCDE, World Bank, CGAP and DFID The case for financial literacy in developing countries. Promoting access to finance by empowering consumers.

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the field, increased from 13 in 2007 to 53 in 200957. An important characteristic of such efforts has been the attempt to decentralize urban centers of actions and programs to reach sectors of the population that havent even been consumers of financial products and services. (See table 5.1).

Chart 5.1 Mapping of financial education initiatives in Mexico during 2009

Participation by Segment
NGO's 9% Popular finance companies 34 % With an alliance 74%

Communication Media 12 % Academics & museums 11 %

Without an alliance 26%

Public organizations 15 %

Banks & Insurance 19 %

People Reached

People reached

Themes

% Inst. 70 %
65 % 55 %

Students Teachers Preschool children House wives Executives / Businessmen Entrepreneurs Institutional Clients Migrants Rural women in poverty conditions Urban women in poverty conditions Peasents / farmers

Personal Finance
Credit Savings

Remittances Insurance / prevision Economic System Corporate Finances Entrepreneurship

Investments

22 % 16 % 12 % 10 % 8%
6%

Source: rsula Heimann and Sergio Gmez Sainz. Mapping of financial education initiatives in Mexico. Sparkassenstiftung fr internationale Kooperation. October, 2009.

57

rsula Heimann and Sergio Gmez Sainz. Mapping of financial education initiatives in Mexico. Sparkassenstiftung fr internationale Kooperation. October, 2009.

Another aspect to note is the increased participation of financial institutions, mainly from some Commercial Banks, as well as from several popular financial sector agencies, the latter directed to a rural and urban marginalized population, through Popular Safe, Community Banks, Solidarity Funds, Microfinance institutions, among others. The participation of these agents is relevant, as they are a direct communication channel to current and future users. Overall, the actions undertaken by all institutions and agencies involved have created a greater awareness of the importance of financial education to improve peoples welfare and prevent risks. In the years to come, the main challenges in this field will be: to encourage the participation of a larger number of actors, create the right incentives for financial intermediaries to increase their active participation, promote greater synergy among institutions to avoid effort duplicity and fully exploit the resources for such initiatives and, as a priority, develop indicators to measure systematically the financial education levels of the population, and identify the main barriers to their access, to assess the impact of the implemented actions and determine new strategies. Protection to the consumer of financial services The protection for the consumer or user58 of financial services seeks to balance relations among the consumers and financial intermediaries, so that the authorities and intermediaries are the ones who clarify the terms and conditions of such services, promoting a fair treatment to consumers and providing a timely, efficient and appropriate mechanism in dispute resolutions. (See Chart 5.2). The lack of financial consumer protection contributes to the present situations of: overindebtedness, abusive conditions, inappropriate billing practices, insufficiency of complaints and claims mechanisms, as well as lack of privacy in personal information, among others. Authorities in different countries and financial institutions agree on taking action to protect financial service consumers. The objective is to establish a framework of regulation and supervision that constitutes a tool to balance the information asymmetry, maintain the financial stability and achieve market discipline. In addition, to ensure the operation of the protection mechanisms financial education programs are needed to allow consumers to know and understand in a preventive way their rights and obligations.

58

The Law for Protection and Defense of Financial Service Users in its 2nd Article defines it as: A person who hires, uses or for any other cause has some right regarding a financial institution as a result of the operation or service provided.

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Chart 5.2 Consumer protection participants Authorities: Responsible for establishing a relation between financial intermediaries and consumers of financial products and services that develops under conditions of equality and transparency applying the legal norm governing in this area and contributing to promotion of financial education through the divulgation of financial contents and the use of computer tools (simulators, records, etc...).
Source: Condusef

Financial Intermediaries : They have a social responsibility as economic growth promoters as well as an operational responsibility from the knowledge they have of the products and services they offer, which should be applied to implement policies and the criteria for the selection of users, in such way that the latter will be in a position to meet the implicit obligations of hired services or products, and in turn get some benefits.

Consumer: Using the information and support tools at his dispossition, both authorities and financial intermediaries should know the rights and obligations that are beeng acquired and, in this way, determine his capacity to handle them. On the other hand, he must also be able to evaluate the benefit cost of the product or service that he desires to hire.

In Mexico, many years ago, the efforts to create a framework for consumer protection was initiated, being in 1998 when the Law for Protection and Defense of Financial Service Users (LPDUSF, as in the Mexican abbreviation) was approved, and published until January 1999. In the same year, the National Commission for the Protection and Defense of Financial Service Users (Condusef, as in the Mexican abbreviation) was created. Subsequently, various reforms were made to the legal framework, with the objective of strengthening and generating new attributions on consumer protection issues. This deals with modifications as the ones recently implemented on transparency, commissions, advertising, account balances, adhesion contracts, interest rates, and the promotion and dissemination of financial education. (See chart 5.3). It should be noted that one of the most relevant Condusef strengths is on the integral vision that is given by its regulatory framework on the operation of the financial system, as it equally interacts with banks as with insurers, Regulated Financing Companies with Multiple Purposes, etc.; supervision attributions have even been conferred in some matters regarding Non-regulated Financial Companies with Multiple Purposes. Other countries have also initiated actions for the benefit of users. Such is the case of the United States, which recently established the Consumer Financial Protection Agency (CFPA), which has the responsibility of ensuring that the regulations are fair and put into practice in a rigorous way.

Likewise, reforms are proposed in the administrative and regulatory framework to promote transparency, simplicity, justice and market access for financial products and services. In Brazil59, in recent years it is required that all authorized financial institutions have an internal ombudsman that has been accredited to deal with unresolved complaints by the customer service departments60. Another example comes from Colombia who has undertaken reforms in the regulation of its financial system, which establishes rules and principles governing consumer protection. The reform of Colombia includes measures relating to both the protection scheme and the rights and obligations of the financial services consumers61. In the case of Peru, the government, as the supervisor of policies and procedures established by the institutions to receive, handle and resolve consumer complaints, has created a specialized unit to address all matters relating to the defense and promotion of market transparency62.

59

US Department of the Treasury, Financial Regulatory Reform. A new foundation: Rebuilding Financial Supervision and Regulation. 2009. 60 Consultative Group to Assist the Poorest Population (CGAP) Branchless banking and consumer protection in Brazil. Banco Central Do Brasil. December, 2009. 61 Colombia Presidency of the Republic. The ABC of financial reform. Retrieved on July the 7th, 2010 at: http://web.presidencia.gov.co/sp/2009/junio/27/04272009.html 62 Superintendence of Banking, Insurance and AFP (SBS) y CGAP. Financial Inclusion and consumer protection in Peru. Joint Assessment Report. February, 2010.

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Chart 5.3 National Commission for the Protection and Defense of Financial Service Users (Condusef) The creation of Condusef in 1999 reflects the need to have an independent, impartial and specialized organism in resolving disputes arising in the provision of financial services. Within its attributions, preventive functions are contemplated as the promotion of financial literacy among all segments of the population; it also addresses corrective aspects such as the defense of the legitimate interests of service users provided by financial institutions and the promotion of fairness in the contractual relations between them. In 2009, Condusef receives the authority to issue general provisions on the requirements for Adhesion Contracts of massive operations, on the form and terms to advertise the operations and services offered by financial institutions, and the requirements to be met by bank statements and operation vouchers, among others. Over eleven years, the Condusef has provided the following service activities: advice to users, dispute resolution through conciliatory procedures, arbitration, legal counseling, legal defense of the users and educational programs development concerning economic and financial matters. To perform these actions Condusef has 36 delegations distributed throughout the country.

Cases Atended per Year*

(Figures In thousands) 1000 900
800

974

700 600
500

637

400 300 200 100 0 93 163 185 197

383 303

390 329

436

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

* Since 2004in the statistics presented. the Interactive Voice Response (IVR). This tool is not it was implemented Source: Condusef considered in the statistics presented. Source: Condusef.

Since 2004 it was implemented the Interactive Voice Response (IVR). This tool is not considered

Principles of protection to product and financial service consumer According to some studies, consumer protection is based on three principles which must encourage the development of the financial system and ensure a healthy relationship between the participants. The basic principles of consumer protection are: transparency, equity and resources for conflict resolutions63.

Chart 5.4 Consumer Protection

Fair Treatment
CONSUMER PROTECTION

Transparency

Recourse

Source: Condusef

Transparency In general terms, users have less information about the characteristics of financial products and services to those available to intermediaries who provide services. This imbalance of information is higher when the costumers are less experienced and the products are more sophisticated64. For that reason, transparency is one of the basic principles of consumer protection. The principle of transparency refers to mechanisms that provide relevant information
63

Laura Brix and Katherine McKee. CGAP: Consumer Protection Regulation in Low-Access Environments: Opportunities to Promote Responsible Finance. Focus Note No. 60. 64 Alliance for Financial Inclusion, AFI. Consumer Protection, Leveling the playing field in Financial Inclusion. Policy Note; Bangkok, Thailand, 2010.

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to financial service users in a useful, clear and timely way, before, during and after performing a financial transaction. Fair treatment The second principle of consumer protection covers the procedures guaranteed by financial intermediaries for a fair and equitable treatment of their current and potential customers. Such protection assures that users will not be sold financial products or services inappropriate for their profile. Recourse Under the principle of conflict resolution, all the mechanisms for effective and timely error resolution, unconformities and disputes between users and financial institutions are included.

Chart 5.5 Basic Principles for Consumer Protection

Source: Condusef

The next reports of Financial Inclusion will deepen on the elements that integrate and show the behavior and evolution of the basic principles of financial product and service consumer protection.

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FINANCIAL INCLUSION BARRIERS65

Recently, efforts have been focused on obtaining data that results in basic indicators of Financial Inclusion, as the number of branches or financial contracts; other efforts are based on surveys on businesses or households, allowing the development of estimates in relation to the percentage of the population using financial services. This aggregate information enables us to obtain measurements of Financial Inclusion in two dimensions: access and usage; however, it is important to take into account a third dimension: access barriers.

65

The initial effort to identify barrier indicators is led by Thorsten Beck. Beck is currently a professor in the Department of Economics at the University of Tilburg in the Netherlands and he previously worked at the World Bank.

Barriers directly affect the access of the population to financial services, hence their use. The identification of barriers offers the ability to detect more easily public policies that maximize the impact on Financial Inclusion. The development of specific indicators, that allow measuring the impact of each barrier, will contribute to the development of a regulatory framework that favors new business and innovation models of financial productions and services. The indicators developed so far based on the number of accounts or the percentage of the population using a particular service, provide information regarding the use of products; likewise, indicators as the number of branches or point of sale terminals focus on geographic access; however, they ignore other barriers such as the contractual framework and lack of financial education, among others. Access barriers may exist either on the side of the supply or on the side of the demand. Graph 6.1 presents a classification to distinguish the possible reasons why, intentionally or unintentionally, people do not have financial services. This classification provides a framework for identifying the various barriers and it facilitates the development of indicators for each of them. Graph 6.1 Difference between access and usage of financial services

Source: World Bank (2008): Finance for all

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Financial Exclusion It is important to distinguish between the population that has access, but does not demand financial services, and the population demands services, but has no access. These two groups are not constant over time: with the development of the economy and technology the proportion of people who voluntarily exclude themselves could be reduced, as in a more interconnected World, to participate in the market involves more participation in the payments system and, therefore, in the formal financial system. The voluntary exclusion may occur for different reasons (see graph 6.2). A priori, the segment of the population that says that it does not need financial services does not seem relevant, because somehow the existence of some indirect access is assumed; however, it should be considered that there may be individuals who declare not to need financial services for lack of information, financial education, and even for a lack of marketing in this segment (lack of targeting). There are other reasons for voluntary exclusion, for example: religious beliefs, cultural factors and lack of confidence in the financial system; this last may be originated either from personal experience, or by that of a family member or friend. Graph 6.2 Voluntary Financial Exclusion (self-exclusion)

Source: CNBV

Among the groups excluded involuntarily there are different causes that can be distinguished that prevent access to financial services (see graph 6.3). The barrier of insufficient income refers to the group that has no financial services due to low income or, whose incomes are highly volatile. The proportion of the population excluded from this cause may vary with the cycles of economic growth: under improved economic conditions, the costs of providing financial services are reduced, while simultaneously the revenues from the lower segments of the population increase.

Another group that suffers involuntary financial exclusion is one conformed by the individuals that are located at great distances from a bank office as, both travel time and transportation costs are reflected in high costs that prevent them from accessing financial services. There is an important barrier related to costs associated to the maintenance of a bank account, as to specific services, such as: cash withdrawal, check use, debit card use, etc. This category considers the household and business population that is excluded for price or product reasons; which is to say, when the costs for maintaining an account are elevated or because of the lack of products that are adapted to the needs for this segment of the population. There are other barriers, as all the ones related to the contractual framework; these barriers refer to the documentation requirements that are required of homes and businesses to: open an account, ask for a loan, etc. Further on we refer to these obstacles as documentation barriers. Graph 6.3 Involuntary Financial Exclusion

Source: CNBV

Measurement proposals As it has been seen, the barriers affect different segments of the population in dissimilar ways; for this reason, it is necessary for the barrier measurement to incorporate the characteristics of each segment. For example, the cost to open and maintain a bank account must be evaluated in regards to the income of potential customers. To measure the barriers via indicators, both supply

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data (financial institutions) and demand data (users and potential costumers) must be available. The collection of demand data will allow to compare both sides of the market and to identify barriers from the demand that are exclusive. The supply data may be obtained from the information that financial institutions provide periodically to the authorities through regulatory reports, and from information gathered from specialized studies elaborated by the World Bank 66, whose information can be illustrated in the first column of table 6.4. On the other hand, the data from households and enterprises may be obtained via surveys as the one applied in various countries by Finscope67, which included questions about financial services usage, the reasons for not using these and issues related to financial education in households and enterprises. This information may be combined with other available statistics at state and municipal levels to construct indicator barriers. There are two classes of indicators: those which identify barriers and those which measure the effect of such on Financial Inclusion. To measure the effect of the barriers, it is necessary to identify if these are originated on the side of the supply or of the demand. The supply barriers originate in the policies implemented and decisions made by financial institutions; the effects may vary depending on demographic characteristics, geographic aspects, infrastructure presence, etc. Demand barriers are those related to the individuals decision to consume or not a good or service. Below reviews the different barriers, without considering the segment of people excluded for insufficient income, as the level of income represents, in itself, a barrier that cannot be solved through public policies that promote access to the financial sector.

Financial education barriers These barriers could be measured using information obtained from household and business surveys, that include questions about the knowledge of certain products and some financial habits such as the propensity to save or the mechanisms used to ensure oneself against unforeseen events.

Distance barriers To facilitate the possible measurement of this barrier it is important to identify the physical places in which different kinds of transactions can be made. For example, Where can an account
66

Thorsten Beck, A. Demirguc-Kunt, M. Martnez Peria. Banking services for everyone? Barriers to bank access and usage around the world. World Bank Economic Review, Oxford University Press, vol. 22 (3), 2008. 67 Finscope is an initiative of FinMark Trust from the United Kingdom that develops representative studies at national level in various developing countries on the use, attitudes and perceptions that consumers have on financial services, allowing a better knowledge of consumer markets.

be opened: in a branch or with a banking agent?, Where can a credit be requested: in a branch, by phone or by Internet?, Where can transactions, like deposits or withdrawals, be made: in a branch, with a banking agent or in an ATM?

Documentation Barriers The greatest household barrier in this context is presented at the moment of opening an account; due to the fact that banks request, be it because they are obliged by bank regulations or because of internal policies, certain legal or commercial documents to prove the identity and economic resources of the person concerned, like passport, proof of address and proof of income, to mention some of them. Apart from the documentation, collaterals must be considered, such as guarantees or having a good credit history, in case of credit services. Be it to open an account or request a credit, the population percentage that can meet the respective requirements can be measured.

Cost barriers Another barrier is constituted by the cost for the costumer on maintaining a bank account and using certain financial services. A possible estimated measurement of this barrier would be to measure the direct cost involved in managing an account. Other considerations include the commissions for specific services such as withdrawing cash at ATMs, issuing a check, making transactions in POS terminals or in a banking agent, among others. The purpose of the indicators is to identify the percentage of the population affected by each barrier and identify what is the most significant barrier for people without access. Table 6.4 presents the possible indicators and data needed to measure these barriers. Currently, there are several efforts to generate indicators to estimate the effects of each of these barriers. This will seek to build a more complete indicator framework of Financial Inclusion.

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Table 6.4 Barrier indicators of household financial access (deposit and payment services) and required data to develop them
Barrier Indicator
Costs to maintain a basic account including the possibility of cash deposit and withdrawal.

Other required data

1. GDP per capita at state level. 2. Income distribution at state or municipal level.

Effect-offer indicator
1. Annual cost to maintain a basic account divided by GDP per capita. 2. Percentage of population with insufficient income to afford the costs of a bank account (assuming 2% of income that can be used for financial services).

Effect-demand indicator
Percentage of population who does not have a bank account due to its costs.

Costs

How many and which documents are required to open an account. Documentation

Percentage of population with identity card (passport, IFE...), proof of address, proof of formal employment and other documents required to open accounts. Distribution of population and area at state or municipal level.

Percentage of population who does not have requested documents.

Percentage of population who does not have a bank account due to their lack of required documents.

Distance

1. Number of branches, ATMs and banking agents. 2. Places where (i) it is possible to open a bank account, (ii) make deposits, (iii) make cash withdrawals and (iv) make payments branches, ATMs, banking agent, mobile phone, Internet.

Average distance to branch or banking agent where it is possible to (i) open a bank account, (ii) make deposits, make cash withdrawals and (iv) make payments.

Distance to the nearest bank branch or banking agent based on the answers given in household surveys. Assuming a certain value it is possible to indicate the population percentage excluded because of geographical reasons.

Demand

1. Percentage of households with knowledge about some financial products and concepts. 2. Percentage of households with no account due to their lack of confidence, their cash preferences or because they are illiterate. 3. Percentage of households that show some financial capabilities. 4. Percentage of households with basic skills in financial mathematics.

Source: Thorsten Beck

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