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Vol. 3, No. 7
JULY 2008­­

Insights from the

F e d e ral R e s e r v e B an k o f Dallas

Reaching Mexico’s Unbanked
by Edward C. Skelton

Banks and the

A well-developed financial system works as both a powerful antidote to

government have

poverty and a gateway to prosperity. By improving economic efficiency, boosting

mounted a major effort

consumers’ purchasing power and helping citizens realize economic opportu-

to extend financial

nity, broader access to financial services helps raise living standards. Low-income

services to those

families that take advantage of financial services enjoy increased security and re-

without them.

duced costs—in both paying for goods and services and seeking to build wealth.
Better access to credit helps small businesses fulfill their potential.
In the United States, the benefits of financial services are largely taken
for granted. More than 90 percent of U.S. households have bank accounts, according to the Federal Reserve’s Survey of Consumer Finances. Nevertheless, both the
private and public sectors devote considerable time and resources to extending
banking services to the relatively small number of households that lack them.

The situation is very different
south of the border. Less than 25
percent of Mexicans possess even
the most basic financial convenience:
a simple checking account.1 Those
without access to financial services
encounter higher costs for cashing checks, paying bills and starting
Bringing the benefits of financial services to more people is an
important goal in Mexico. To achieve
it, financial institutions and the government have mounted major efforts
aimed at the vast number of citizens
outside the formal financial system.
Recent signs point to success with
using a variety of innovative channels to reach Mexico’s unbanked and
underbanked. Interestingly, among the
foremost is a strategy banned in the
United States—a bank and retail operation under common ownership.

Because money
is a primary
obstacle, the poor
are more likely
to be unbanked.

Plight of the Unbanked
Lack of access to financial services
imposes significant costs on Mexico’s
unbanked—both individuals and

Chart 1

Financial System Participation Low
Among Poorer Households
Millions of households						





Financial system participation






152 to

315 to

668 to

1,049 to

1,620 to

2,477 to

8,191 to


Monthly household income (U.S. dollars)

SOURCE: Sigma Mercados y Libro Mercadológico BIMSA, 2007.

EconomicLetter 2

F ederal Re serve Bank of Dallas


small businesses. Cashing paychecks
requires up to 10 percent of income.2
Paying bills in cash takes more time,
carries risks to personal security and
entails transportation costs. For startup
entrepreneurs, relying on the informal
financial system can boost costs by 15
A large, unbanked population
burdens the financial system itself. The
Banco de México, the country’s central
bank, reports that cash transactions
cost the system up to five times more
to process than checks, which are, in
turn, more expensive than electronic
In lieu of formal financial services,
unbanked households resort to such
options as the proverbial cash under
the mattress and community savings
clubs. What people really want are
deposit accounts, even those that don’t
pay interest, the World Bank reports.
What stops individuals and small
businesses from establishing a banking relationship? In a recent World
Bank survey, 70 percent of Mexico’s
unbanked cited high fees and minimum balance requirements as the
principal reasons for not accessing the
formal financial system.
Because money is a primary
obstacle, the poor are more likely to
be unbanked. If we define participation as the ownership of at least one
financial product, Mexican households
with lower monthly incomes have lower rates of participation in the formal
system (Chart 1).
Even small reductions in bank
fees, balance requirements and other
barriers might encourage many to
open an account. An estimated 90
percent of Mexicans are homeowners,
a high rate that suggests a capacity for
saving among the unbanked despite
low income levels. Possession of a
deposit account could spur additional
Geography is another barrier to
banking relationships. Private commercial banks have a presence in only 465
of the country’s 2,439 municipalities.
A government-owned development

bank and a number of small financial
intermediaries cover an additional 525
municipalities, leaving 1,449 municipalities and their total population of
almost 14 million with little if any
access to formal financial services.
Market Responses
Mexico’s financial sector has
changed considerably over the past 10
years as its institutional, technological
and regulatory environments have in
many respects become world class.5
This newly energized financial
system is looking beyond its traditional
customer base. Entrants to the banking
sector, including retailers, are targeting the unbanked and underbanked.
They’ve been joined by some large
banks, both domestic and foreign.
These developments are beginning to
attract more households to the formal
financial system.
New-bank strategies. Fourteen
new banks have been chartered since
May 2006, adding to a base of 28 institutions. The new banks are pursuing
widely divergent approaches. Five are
focusing on private banking, trading
and other high-end activities. The nine
others are targeting the unbanked or
underbanked—usually low- and middle-income customers with monthly
incomes of US$200–$3,600.
The growth in specialized banks
should continue because they can
now take advantage of a charter that
enables them to target specific markets. The niche bank charter, introduced in 2007, is likely to be an attractive vehicle for market entry because
it entails lower startup and regulatory
compliance costs.
The charter presents an especially
appealing opportunity for unregulated finance companies, known by
the acronym sofomes, which stands
for Sociedades Financiera de Objeto
Múltiple. Sofomes, a relatively new
type of finance company, can’t accept
deposits and aren’t subject to regulation by the national banking commission, Comisión Nacional Bancaria y de
Valores (CNBV).6

Mexico has about 400 sofomes,
with the majority focused on the agricultural industry. The remainder mostly
offer credit to micro to medium-sized
Some sofomes have indicated an
interest in becoming niche banks,
which would allow them to accept
deposits. A direct source of funds
would lower costs, but the institutions
would be subject to regulation.
Most of the new banks targeting the unbanked or underbanked
work through an existing retail business or, in one case, a microfinance
business. The strategy of targeting the
low-income end of the market can
be traced to the emergence of Banco
Azteca, the first bank owned by a
Retailers and the unbanked.
Azteca was established in 2002 by
Grupo Elektra, a retailer specializing in
sales to low-income consumers. Before
opening its bank, Grupo Elektra
gained extensive lending experience
by extending store credit to customers.
With its new venture, the retailer can
also offer basic banking products.
Before obtaining a bank charter,
Grupo Elektra extended credit through
its financing subsidiary, which didn’t
have access to deposits as a source of
funds. Instead, the subsidiary obtained
funding by securitizing accounts
receivable, issuing debt or borrowing
money. The banking business provides
Grupo Elektra with a relatively lowcost source of funds, an additional
business line and a potential source of
Retailer-owned banks offer basic
financial products, such as small personal loans and a savings account
with a debit card and minimum initial
balance of 50 pesos—about $4.90.7
Moreover, retailer-owned banks tend
to offer interest rates 1 to 2 percentage
points higher than traditional banks.
The retailers also offer an appealing client base because an estimated
80 percent of the customers of
Mexico’s large retail stores have never
had bank accounts.8 Combined with

F ederal Reserve Bank of Dallas	

This newly energized
financial system
is looking beyond its
traditional customer
base. Entrants to
the banking sector
are targeting the
unbanked and

the capacity to purchase relatively bigticket items, this suggests the need for
financial services.
For customers, bank credit
adds flexibility because store credit
was obviously limited to purchasing
goods sold by Grupo Elektra. Deposit
accounts provide an additional option
for customers, and access to the formal
financial sector can reduce households’ cost of making and receiving
The retailer-owned bank strategy
seems to be paying off. In less than
five years, Azteca has grown into
Mexico’s eighth-largest bank by deposits and 10th largest by assets. The bank
has exported its business model to six
other Latin American countries.9
Retailers have advantages over
traditional banks in attracting deposits
from the unbanked. First, the unbanked frequent stores, have some

3 EconomicLetter

Expanding geographic
reach through a brick
and mortar network is
expensive, but banks
have other options.

level of allegiance to them and already
use stores as their primary source of
credit (Table 1).
Second, retailers’ existing storefronts allow them to open bank
branches quickly and cheaply. Banco
Azteca’s branch network and number
of accounts are on a par with many
of Mexico’s largest banks (Table 2). In
terms of asset size, though, Azteca is
much smaller, reflecting its low average account balance.
The ability to establish new
branches quickly at low cost is important because a physical presence is a
key driver of financial services use.
Not surprisingly, states with a large
number of bank branches report
higher financial system participation, as
measured by the number of demand
deposit accounts per capita (Chart 2).10
The CNBV has imposed specific
conditions on retailers in the commercial banking business. One of the most
publicized cases involves U.S.-based
Wal-Mart, whose especially detailed
restrictions may be a bellwether. The
conditions center on transparency and
maintaining a clear separation between
the retail entity and bank.11
This retailer-owned bank strategy—so popular in Mexico—is prohibited in the United States. Generally,
U.S. retailers may lease space to a
bank but not own one. Objections

Table 1

Where Do the Unbanked
Get Credit?

Department store
Savings bank
Finance company
Savings and loan
Credit union


Table 2

Retailer-Owned Bank Attracts Small Accounts
Number of

Number of

(millions of pesos)

(millions of pesos)
































NOTE: Data are as of March 31, 2008.
SOURCE: Comisión Nacional Bancaria y de Valores.

SOURCE: World Bank.

EconomicLetter 4

to mixing banking and commerce in
the United States include issues with
deposit insurance and the concentration of economic power.12
Large-bank strategy. Large
banks aren’t well positioned to serve
the unbanked because their branch
networks still reflect the historical
focus on relatively high-income households. The ratio of bank branches to
population tends to be higher in states
with high per capita levels of economic activity, whereas the unbanked
are more likely to live in low-income,
sparsely populated areas (Chart 3).
Expanding geographic reach
through a brick and mortar network
is expensive, but banks have other
options. Some large banks have recognized the potential in forming a
relationship with retailers and created
joint ventures to launch sofomes that
operate inside the stores.
The new entities largely target
store customers who have had little or
no interaction with a bank by offering
small loans without requiring a credit
history. Because people in even the
smallest towns and poorest pockets
of big cities visit stores, the strategy
should allow banks to reach customers
missed by traditional branching.
Larger banks find these joint ventures attractive. First, the sofomes aren’t
subject to regulation by the CNBV,

F ederal Re serve Bank of Dallas

effectively lowering the cost of operations and compliance.
Second, partnering with a retailer
promises a way around low-income
households’ perception of banks as
intimidating, overly formal and inconvenient. By contrast, retailers are often
viewed as sympathetic, familiar and
customer-oriented. Banks could use
the sofomes as stepping stones to providing households with full banking
Microfinance lending. At yearend 2006, 44 microfinance institutions in Mexico reported data to the
Inter-American Development Bank, up
from 39 a year earlier.13 They included
finance companies, a bank and nongovernmental organizations, such as
those set up by the World Bank and
the International Monetary Fund.14
These lenders offered business
loans ranging from 100 to 30,000
pesos—or $9.78 to $2,933. Microloans
averaged 4,500 pesos ($440), with
monthly interest of 4.5 percent.
Mexican microfinance lenders
build extensive networks of small,
sometimes home-based, branches.
Over the past six years, private-sector
microfinance institutions have funded
more than 4.8 million loans. Still, a first
quarter 2008 Banco de México study
found that 70 percent of small businesses fulfilled their financing needs
through trade credit—loans provided
directly by the suppliers of goods and
The growth potential in this sector
continues to be significant. According
to the International Finance Corp.
(IFC), approximately 20 percent of
Mexico’s businesses, and a mere 11
percent of microbusinesses, have
accessed the formal financial system.
The World Bank has found that
small businesses gaining access to capital tend to generate large increases in
profitability, with an estimated return
of 20 to 33 percent on the funding
received.15 Moreover, the more constrained access to capital had been, the
greater the return once the obstacles
were removed.

Chart 2

Deposit Accounts More Common in States
with Abundant Branches
Demand deposit accounts per 1,000 people










Bank branches per 100,000 people

NOTES: Each point represents one of the 31 states plus the Federal District. Census data are for 2005; bank data are as
of March 31, 2008.
SOURCES: Comisión Nacional Bancaria y de Valores; Instituto Nacional de Estadística y Geografía; author’s calculations.

Chart 3

Bank Branches More Often Seen in High-Income States
Branches per 100,000 people









Per capita gross state product (U.S. dollars)

NOTES: Each point represents one of the 31 states plus the Federal District. Census and gross state product data are for
2005; bank data are as of March 31, 2008.
SOURCES: Comisión Nacional Bancaria y de Valores; Instituto Nacional de Estadística y Geografía; author’s calculations.

F ederal Reserve Bank of Dallas	

5 EconomicLetter

Mexico’s banks have become
more aggressive in lending to micro to
medium-sized businesses. For instance,
Banco Compartamos, a finance company before obtaining a bank charter
in 2006, offers working-capital loans to
Over the past five years, the institution has grown at a compound annual rate of 46 percent in terms of clients
and 60 percent in loans outstanding.
As of Dec. 31, 2007, Compartamos had
more than 800,000 clients and 4.1 billion pesos ($401 million) in performing
loans, spread over 252 locations in 29
of Mexico’s 32 states.
Grupo Financiero Ixe, a holding
company for a small bank that had
focused on middle- and upper-income
households and on corporations, is
using a $70 million capital injection
from the IFC—the World Bank’s private-sector arm—to enter the realm of
As a group, commercial bank
lending to micro to medium-sized businesses is growing rapidly (Table 3).16
Last year, lending to microbusinesses
alone more than tripled. As these tiny
enterprises’ access to credit continues
to improve, the overall Mexican economy should benefit.
Government Responses
Some studies have found that
the prices banks in Mexico charge for
financial services exceed international

Table 3

Bank Credit Up Sharply
(Millions of pesos)


Small businesses






SOURCE: Mexican Bankers’ Association.

standards.17 Indeed, the Banco de
México has criticized the cost of banking, focusing on what it considers a
lack of competition in a system where
the top six banks control about 85 percent of loans and deposits.
For their part, banks cite excessive
regulatory burden as an impediment
to providing lower cost services, a
contention backed by studies that find
Mexico’s compliance costs higher than
those in many other countries.18
The government has developed
a variety of initiatives designed to
address several of these issues.
Increasing competition. While
the recent surge in new banks is
encouraging, regulators have taken
additional measures to spur entry into
the market. These include lowering
capital requirements and streamlining
the application process for niche charter banks.
Making entry into the industry less
expensive and easier should enhance
competition. So should the improved
availability and standardization of
information that can help households
shop for the best deal on financial
The Banco de México posts fees,
interest rates on deposits and the cost
of credit on its website. In April 2007,
Congress passed legislation that also
improves transparency, promotes competition and increases consumer protection. Among other things, it requires
financial institutions to provide clearer
information about the cost of credit in
terms of both fees and interest rates.
The reform also requires that the
banking industry develop basic, nofee deposit accounts for households
lacking access to the formal financial
system. In addition, the law prohibits
fees charged for banking services from
being high relative to a customer’s
income, particularly for checking
accounts linked to automatic payroll
deposits and credit cards. Banks are
prohibited from charging undisclosed
fees. Lastly, service providers must
notify the Banco de México at least 30
days before changing fees.

EconomicLetter 6

F ederal Re serve Bank of Dallas

Reducing regulatory burden.
In addition to its consumer protections, the 2007 legislation clarified
regulators’ role, gave banks more
responsibility for policing themselves
and eased restrictions on financial
institutions, including allowing banks
to outsource various operations and
services. The new law also strengthened external auditors’ role.
Previous reforms allowed banks
to develop their own credit rating
and provisioning methodologies. For
example, a 2006 law standardized regulations across the different types of
financial institutions. Regulators continue to work to harmonize accounting standards across financial institutions to achieve a consolidated, less
burdensome supervisory approach.
A public institution. Banco
del Ahorro Nacional y Servicios
Financieros (Bansefi) is a governmentowned development bank formed
in 2001 with a mandate to expand
households’ access to affordable, formal financial services. The institution
both serves the unbanked directly and
works with small institutions that target this group.
Bansefi has approximately 5 million savings accounts and opens an
average of 28,000 accounts a month.
The bank offers no-fee, interest-bearing savings accounts with an initial
deposit as low as 50 pesos, about
Bansefi’s 550 branches tend to be
located in rural areas (Chart 4A). The
positive correlation between a large
urban population and the availability
of a commercial bank branch highlights the development bank’s role as
a rural provider of financial services
and complement to commercial banks
(Chart 4B).
In addition to offering savings and deposit accounts directly
to households, Bansefi operates as
a second-tier bank for savings and
credit entities. In this role, it provides
support to over 600 privately or collectively held small financial intermediaries that serve the unbanked.

The support includes training and
technical assistance, access to Bansefi’s
operational infrastructure and automation services, and the development of
a broader range of financial products.
Bansefi has developed a technological platform that offers small financial
intermediaries access to common backoffice operations, thereby increasing
economies of scale and efficiency.
A large proportion of Mexico’s
population remains unbanked, but
recent trends suggest private and
public sector efforts are helping the
country make important strides toward
reaping the benefits of greater financial
system participation.
Many new banks are targeting
the unbanked, and their alliances with
retailers give them leverage to achieve
that goal. Large established banks, too,
are undertaking new initiatives—again,
often in partnership with retailers—to
reach the unbanked. These efforts,
combined with government programs
reducing regulatory burden and promoting competition, offer the promise
of bringing low-income consumers
the benefits of access to the financial
Skelton is a business economist in the Financial
Industry Studies Department of the Federal
Reserve Bank of Dallas.

Chart 4

Bansefi Complements Commercial Banks
A. Bansefi More Common in Rural Areas…
Branches per 100,000 people










Population in cities (percent)

NOTES: Each point represents one of the 31 states plus the Federal District. Census data are for 2005; bank data are
as of year-end 2007.

B. …While Commercial Banks Focus on Urbanized States
Branches per 100,000 people




Estimates of the financial penetration rate in

Mexico vary. The World Bank’s 2006 “Mexico:


Country-Level Savings Assessment” reports that
other studies have found 15–25 percent of the
urban population and 6 percent of the rural population had access to the financial system. World






Population in cities (percent)

Bank estimates, which divide the number of people

NOTES: Each point represents one of the 31 states plus the Federal District. Census data are for 2005; bank data are
as of March 31, 2008.

with banking accounts in Mexico by the population,

SOURCES: Comisión Nacional Bancaria y de Valores; Instituto Nacional de Estadística y Geografía; author’s calculations.

yield a financial penetration rate of 23.8 percent.

Data in this section are drawn from “The Urban

Unbanked in Mexico and the United States,”

well as many bill paying, money exchange and


by John P. Caskey, Clemente Ruíz Durán and

check cashing services. In this article, informal

in “The High Cost of Being Unbanked,”

Tova Maria Solo, World Bank Policy Research

institutions are generally those whose trans-

AccessFinance, February 2005.

Working Paper no. 3835, February 2006.

actions are not captured directly by national


accounts data and do not pay taxes. Formal

Slump,” by Robert V. Bubel and Edward

vices include moneylenders, family members,

financial institutions include commercial banks,

C. Skelton, Federal Reserve Bank of Dallas

and rotary savings and credit associations, as

savings and loans, and finance companies.

Southwest Economy, May/June 2005, and


In Mexico, informal providers of financial ser-

F ederal Reserve Bank of Dallas	

Banco de México information, as reported

See “Mexico Emerges from 10-Year Credit

7 EconomicLetter

“Financial Globalization: Manna or Menace? The


Case of Mexican Banking,” by Robert V. Bubel and

America and the Caribbean: How Large Is the

Edward C. Skelton, Federal Reserve Bank of Dallas

Market?” by Sergio Navajas and Luis Tejerina,

Southwest Economy, January/February 2002.

Inter-American Development Bank, November


Before 2007, finance companies existed solely

The 2005 data are from “Microfinance in Latin

2006. The 2006 data are from an April 2008

as sofoles, or Sociedades Financiera de Objeto

update of this survey.

Limitado. Sofoles not converting to a sofomes


charter continue to be regulated by the CNBV.

of a broad range of financial services to low-


At the time this was written, the peso–dollar

exchange rate was 10.23.

“Éxito de Azteca, Bancarizar a Estratos de

Microfinance is often defined as the provision

income households and their microenterprises.
This definition has been liberally expanded in
Mexico to include unbanked small- and medium-

Ingresos Bajos,” by Alicia Salgado, El Financiero,

sized enterprises. Unregulated microfinance

Nov. 3, 2005.

institutions in Mexico generally offer only credit


The countries are Brazil, Honduras, Peru,

products to their customers.

Guatemala, Panama and El Salvador. The retailer


already had operations in four of the six coun-

Capital and Access to Finance in Mexico,” by

tries and could use existing retail locations to

Robert Cull, David McKenzie and Christopher

offer banking services. In the other two coun-

Woodruff, World Bank, Feb. 12, 2007.

tries, Brazil and El Salvador, Elektra is entering


both the local retail and local banking market.

Financiera defines business size by the number

The Federal District has a ratio of deposit

of permanent employees. The definitions are dif-


See “Experimental Evidence on Returns to

In Mexico, development bank Nacional

accounts to people greater than 1. This probably

ferent for manufacturing, commerce and service

reflects people who work and bank in the Federal


District but live in a suburb.



See Diario Oficial de la Federación, “Resolución

For example, see “Banking Services for

Everyone? Barriers to Bank Access and Use

por la que se autoriza la organización y operación

Around the World,” by Thorsten Beck, Asli

de una institución de banca múltiple denominada

Demirguc-Kunt and Maria Soledad Martinez

Banco Wal-Mart de México Adelante, S.A.,”

Peria, World Bank Policy Research Working

Dec. 9, 2006. Although this resolution is more

Paper no. 4079, December 2006. Of the 193

detailed than that for other retailers with banking

banks in 53 countries covered by the study,

subsidiaries, the requirements are similar.

Mexican banks performed below the median


The separation of banking from commerce in

on most measures of access and affordability,

the U.S. has a long and complex history. The

including those for fees on checking accounts,

National Bank Act of 1863 prohibited national

minimum balances for checking and savings

banks from owning equity securities and enu-

accounts, the number of documents needed to

merated the activities in which these banks could

open checking accounts, the cost of consumer

engage. The Bank Holding Company Act of 1956

and small business credit, the days needed to

prohibited banks from engaging in activities not

process credit applications and ATM fees.

closely related to banking. However, although


industrial loan companies, or ILCs, are similar to

Report for Mexico finds that although financial

banks, those meeting certain conditions may be

system regulation is improving at an impres-

owned by commercial entities.

sive rate, the regulatory and supervisory system

For more on ILCs, see “Industrial Loan
Companies: A Growing Industry Sparks a

is published monthly
by the Federal Reserve Bank of Dallas. The views
expressed are those of the authors and should not be
attributed to the Federal Reserve Bank of Dallas or the
Federal Reserve System.
Articles may be reprinted on the condition that
the source is credited and a copy is provided to the
Research Department of the Federal Reserve Bank of
Economic Letter is available free of charge
by writing the Public Affairs Department, Federal
Reserve Bank of Dallas, P.O. Box 655906, Dallas, TX
75265-5906; by fax at 214-922-5268; or by telephone
at 214-922-5254. This publication is available on the
Dallas Fed website,

For example, the May 2007 IMF Country

continues to be complex and compartmentalized,
leading to high compliance costs.

Richard W. Fisher
President and Chief Executive Officer
Helen E. Holcomb
First Vice President and Chief Operating Officer
Harvey Rosenblum
Executive Vice President and Director of Research
W. Michael Cox
Senior Vice President and Chief Economist
Robert D. Hankins
Senior Vice President, Banking Supervision
Executive Editor
W. Michael Cox
Richard Alm
Associate Editor
Monica Reeves
Graphic Designer
Ellah Piña

Public Policy Debate,” by Kenneth Spong and
Eric Robbins, Federal Reserve Bank of Kansas
City Economic Review, Fourth Quarter 2007.
For insight into the debate about retailerowned banks, see “The Mixing of Banking and
Commerce: A Conference Summary,” by Nisreen
H. Darwish and Douglas D. Evanoff, Chicago Fed
Letter, November 2007.

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2200 N. Pearl St.
Dallas, TX 75201