Over-Indebtedness in Mexico: Its Effect on Borrowers

This paper tries to uncover the client pathways to debt in Mexican MFIs and also aims to establish some of the dimensions of a debt crisis. It does so by engaging with FINCA?s Mexican subsidiary. The paper reviews credit bureau data from a pool of loan applicants, surveys branch managers, and conducts qualitative interviews with borrowers. Key findings include:

• Credit bureau data showed a high prevalence of new applicants having existing loans and many of them with multiple accounts in arrears;
• Lacking savings or other assets, our interviewees use credit to finance a wide variety of productive pursuits and to deal with family contingencies;
• In Mexico, creditors are successfully pushing the costs of their reckless loans onto the borrowers themselves. With customers paying the price, bad lending seems to be good business ? for the time being, at least.

The paper concludes by recommending that lenders curb their appetite for unrestrained growth in favor of a more sustainable approach, one that is concerned with the needs and capacity of their customers and with building a high-quality loan portfolio on the basis of sound credit discipline.