Individual Lending to Microenterprises in Mexico: An Overview of Constraints and Opportunities

This paper discusses the challenges and opportunities for financial institutions to offer individual microenterprise lending to low-income entrepreneurs in Mexico. It provides a background of the microfinance sector in the country and discusses the benefits of individual lending as compared to group lending. It also provides an overview of the industry perspective, consumer perspective, outlook for the sector, and recommendations for creating a successful microenterprise lending program. Besides the use of publicly available data, the paper is based on interviews with key representatives from government, financial services providers, industry organizations, and financial inclusion experts. The study also uses insights from focus groups conducted with microentrepeneurs in Mexico City and Zacatecas. Key recommendations include:

• Products must be tailored to meet the needs of the target segment;
• Institutions need to embed financial education in all marketing and communication strategies;
• Product benefits and terms should be transparent and articulated in language understood by clients and tailored to their levels of literacy;
• Credit risk analysis must be built at all levels of the institution;
• Staff needs to be trained to ensure proper loan analysis, and field training must be based on clear procedures and technology for efficient data collection and decision making.