Background and Significance
On May 8th, banks and the Federal Government signed an agreement to help more micro, small, and medium-sized enterprises (SMEs) access financing. However, a clear strategy remains absent.
Fatima Masse, co-founder of Noubi Advisors, acknowledges the difficulties SMEs face in accessing financing but points out the lack of a strategic approach.
The Agreement and Its Objectives
During the agreement signing, it was established that work tables would define actions to “eliminate structural barriers” preventing SMEs from accessing financing, such as informality and insufficient financial education.
Julio Carranza, President of the Mexican Banks Association (ABM), highlights that a significant challenge is the high level of economic informality, which represents 55% of economic activity and limits the availability of financial information.
Approximately 63% of SMEs (over three million) operate in the informal sector, excluding them from the formal financial system and lacking financial education.
This initiative is part of Plan Mexico, led by President Claudia Sheinbaum, aiming for at least 30% of the country’s SMEs to have access to formal credit by 2030. This boosts their integration into production chains.
Challenges to Overcome
Fatima Masse emphasizes the challenges SMEs face, as many are unprepared for production chain integration and tolerant of lengthy payment terms (30, 60, or 90 days).
Structural issues include excessive bureaucracy and red tape for formalization, causing many to remain informal.
“That’s the reality many entrepreneurs face, which is why we see so much informality,” Masse explains.
The Chamber of Deputies approved the National Law to Eliminate Bureaucratic Procedures, reducing the number of business setup requirements from 51 to 32 and halving the necessary documentation.
Lengthy Credit Application Processes
Similarly, applying for credit is a lengthy and complicated process. It seems that Mexican banks prioritize consumer credit, as personal financing is easier to obtain than business loans.
Business credit applications require extensive paperwork, checking if partners aren’t in debt registers, and meeting various requirements. Meanwhile, personal credit is simpler, with constantly expanding credit lines.
“As the administrative process for businesses becomes easier, securing credit will also become simpler,” Masse suggests.
Smaller credits should also be considered, as many businesses lack credit history or are too new to qualify for larger loans.
Lack of Awareness of SMEs
Fatima Masse stresses that the most serious issue is the lack of understanding of SMEs, as the latest National Productivity and Competitiveness Survey of Micro, Small, and Medium Enterprises (ENAPROCE) by the INEGI was conducted in 2018, and SMEs have since changed.
“If today’s focus is on supporting SMEs, we must know them better. If this administration’s goal is to support, grow, and connect SMEs with global chains, we need to understand them much better,” Masse asserts.
Meanwhile, it’s essential to wait for the work tables’ progress to learn about the strategy’s details and its differences from past programs.
Key Questions and Answers
- What is the main issue with SMEs accessing credit? The primary challenges include informality, insufficient financial education, excessive bureaucracy, lengthy application processes, and a lack of understanding of SMEs.
- What percentage of SMEs operate in the informal sector? Approximately 63% of SMEs, or over three million, operate in the informal sector.
- What is the goal of Plan Mexico regarding SMEs and credit access? The aim is for at least 30% of the country’s SMEs to have access to formal credit by 2030, promoting their integration into production chains.
- What are the structural challenges faced by SMEs? Structural challenges include excessive bureaucracy, lengthy application processes, and a lack of understanding of the unique needs of SMEs.
- What legislative changes aim to simplify business setup? The National Law to Eliminate Bureaucratic Procedures reduces the number of business setup requirements from 51 to 32 and halves necessary documentation.
