Microlending in Mexico: Still Extortionate

BusinessWeek has a big (3,000-word) story

on Mexican microlending, by Keith Epstein and Geri Smith. It’s heavy on

the anecdote, and it comes down hard on one lender in particular: Ricardo Salinas’s

Banco Azteca, which specializes in consumer finance. I’m no fan of Salinas,

who’s a very shady businessman indeed. But I find it interesting that BusinessWeek

concentrated on Azteca.

It’s well known that Azteca is extremely profitable and charges very high rates

of interest – that’s why everybody from Wal-Mart to HSBC is trying to

muscle in on Azteca’s territory and enter the same market. But the thing is,

Azteca never really claims to be a microlender in the way that Compartamos,

say, does. Azteca is unashamedly a for-profit institution, and doesn’t even

attempt to justify its activities by pointing to the way in which they help

the poor.

Meanwhile, Compartamos, which was founded with money from the likes of CGAP,

charges just as high interest rates, but dresses them up in all manner of development

and social-welfare frippery.

This is why I welcome Wal-Mart’s move into the Mexican banking system: it’s

the only way that interest rates are really going to fall. That said, BusinessWeek’s

example of a Wal-Mart television-finance plan with an APR of 86% does give me

pause: it might be that Wal-Mart becomes just another usurer, rather than a

real force for driving lending rates down to sensible levels.

Where I have no faith at all is in the ability of the big foreign-owned Mexican

banks to help solve the usury problem. Citi’s Banamex has its Crédito

Familiar brand; HSBC has a 20% stake in Financiera Independencia. Both are an

entrenched part of the Mexican banking system, where there has historically

been very little competition on retail lending rates: there’s a very small number

of banks, and consumers find it impossible to find one which lends at a much

lower rate than the others.

If there is any hope, then, it lies either with Wal-Mart or else with Mexico’s

dysfunctional legislature, which could presumably cap interest rates were it

so inclined. I’m not holding my breath.

(Via Thoma)

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