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MEXICO: Microloans from Distant Lands a Mouse Click Away

Emilio Godoy

MEXICO CITY, Aug 3 2011 (IPS) - Norma Isela from the city of Piedras Negras in the northern Mexican state of Coahuila needs 500 dollars to expand the merchandise inventory in her business selling shoes by catalogue and to broaden her offer of clothes and accessories. So far she has managed to raise 45 percent of that amount.

Her microenterprise is just one of many listed on Kiva.org, a San Francisco-based organisation founded in 2005 that makes it possible for people to lend money via the internet to small businesses all over the world.

Peer-to-peer microlending is a growing trend, driving by organisations like Kiva, the France-based Babyloan, and the my Electronic Loan Exchange Network – myELEN.com – founded by Czech economists.

“It’s a source of funding that we have used to finance many projects. It’s a good option,” Maricarmen Martínez, head of training at the Fundación Realidad (Reality Foundation), an affiliate of World Vision Mexico and a partner of Kiva since 2009, told IPS.

In person-to-person philanthropy, lenders choose a recipient, provide the money – a minimum of 25 dollars – and are paid back after a certain period of time, after which they can start all over again. The organisation carefully screens its partners in other countries, to make sure they are transparent and do not charge usurious rates of interest.

Microfinance institutions in Mexico handle a loan portfolio of at least 2.7 billion dollars and deposits of 1.6 billion dollars, according to the Microfinance Information eXchange (MIX).

More than 600 savings and loan institutions, most of which are cooperatives, operate in Mexico’s microfinance sector. They have more than 1,000 branches and serve some 5.5 million clients, according to the National Banking and Securities Commission (CNBV), the Mexican securities regulatory authority.

Microcredit has become a tool for fighting extreme poverty in the most marginalised communities in Mexico and other poor countries, although it is still a growing young industry, with simple financial products and high interest rates.

“Microfinance is innovative and peer to peer lending is even more innovative as the concept implicates the general public in supporting the micro-entrepreneurs by lending,” Babyloan investment officer Anne-Charlotte Dupont Lhotelain told IPS. “From my point, general assessment will be that peer to peer lending needs to be developed and spread, in order to make this concept part of people’s conception of help.”

Founded in 2008 by Arnaud Poissonnier, an expert in investment banking, and Aurélie Duthoit, a young entrepreneur who worked in development aid, Babyloan financed 6,160 microbusinesses through 10 financial institutions in 10 countries, including Nicaragua, Peru and Ecuador, for a total of 1.9 million euros (2.7 million dollars).

“It’s a good funding option,” said Francisco de Hoyos, director of the ProDesarrollo network, which groups 88 microfinance institutions. “It links up people who have money with people who need it. It makes microcredit more personal, because the donor gets to know the person they’re lending to. It has a social focus, not a commercial one,” he told IPS.

In Mexico, 35 percent of the economically active population of 46 million has no access to formal financial services, more than half of the country’s 2,440 municipalities have no bank, and only 25 percent of the country’s 112 million people have savings accounts.

But most of the strategies “are still about improving the cost to serve (existing customers) and much less about growing towards lower income segments,” says the “Technology Programme – Country Note: Mexico” report published in March by the Consultative Group to Assist the Poor (CGAP), an independent entity housed at the World Bank.

“New partnership models and ambitious experiments involving key players may drive the market towards more efficient models and more affordable low-income offerings beyond credit,” adds the report authored by Xavier Faz and Paul Breloff.

In Mexico, the microfinance penetration rate is 22 percent, according to the Inter-American Development Bank (IDB).

The report “2010 Microfinance Americas: The Top 100” by MIX and the IDB Multilateral Investment Fund says “Mexican institutions continued to stand out for their growth, even in absolute terms.”

It adds that “the Mexican market continues to show exciting potential for new institutions with sound management to rapidly expand their outreach in number of clients served.”

Martínez, whose organisation has 20,000 clients and a payback rate of 96 percent, says “It’s a very profitable business. Many institutions start making money and forget about the essence of microfinance, the social vision.”

The loans made through the Fundación Realidad range from 83 to 3,700 dollars and go to small businesses like grocery shops or tortilla stands.

Through Kiva, the Fundación Realidad has provided a total of nearly 1.5 million dollars in loans to 4,416 recipients.

On Kiva.org itself, over 596,000 people have made loans totalling 224 million dollars, involving 59 countries and a repayment rate of just under 99 percent. The average individual loan through Kiva is 237 dollars.

“I would say that it is not easy to build the link between the general public and micro entrepreneurs living in poor conditions in other countries,” said Dupont-Lhotelain. “Even the lending process is innovative and people are not used to it (versus donations).”

In 2010, Babyloan was one of five winners – out of 800 competitors – of the Innovative Financial Solutions for World Development competition organised by the French Development Agency together with the Bill and Melinda Gates Foundation and the World Bank.

“Institutions evolve along with the needs of their clients,” said de Hoyos. “One initial need that has not been met is total access to formal financial services. The first goal is to bring services to a greater proportion of the population, to a market that has traditionally been ignored.”