Introduction
At last week’s Banking Convention, financial inclusion once again took center stage, and rightfully so. One of Mexico’s major economic challenges is its low banking penetration, both in savings and credit. It’s encouraging that this topic is back in the spotlight.
The Financial Inclusion Paradox
For over two decades, financial inclusion has been a significant enigma in Mexico. Access to accounts, credit, and digital banking services is far below what a country with Mexico’s income level should have. With a per capita GDP exceeding $11,000, Mexico should have bancarization rates similar to Brazil, South Africa, or Chile. However, only 49% of adults in Mexico have a bank account compared to over 80% in those countries, despite having lower per capita incomes. The gap is even more pronounced in formal credit, with Mexico reporting levels comparable to African countries with a quarter of its income.
This disconnect between economic development and financial access makes Mexico an atypical case, where growth and macroeconomic stability haven’t led to a genuine democratization of the financial system.
Structural Causes
This paradox cannot be attributed to a single cause. It’s a structural problem with roots on both the supply and demand sides.
Since the 1994-95 crisis, Mexican banking—now largely foreign-owned—has been extremely risk-averse. The reality is that it doesn’t need to seek new customers. With a return on equity (ROE) of 18-20% in recent years, far above what’s observed in developed countries and other emerging economies, Mexican banking maintains high profitability by operating on a reduced base. Their focus is on formal, high-income sectors where costs and risks are lower.
As a result, there are no clear incentives to expand their reach to broader population segments. The current model allows maintaining high margins without mass inclusion, explaining why, despite macroeconomic advances, Mexico still shows financial inclusion levels comparable to much poorer countries.
Demand-Side Challenges
There are also demand-side issues. As Santiago Levy has pointed out, Mexico’s fiscal and social protection system creates incentives that push businesses and workers towards informality.
The costs associated with formality—employer contributions, employment taxes, and unequal access to public services—make even middle-income individuals opt to stay outside the formal framework. This informality not only has fiscal and labor effects but also limits demand for financial services.
Those operating in this environment face barriers to accessing the banking system: they lack income proof, credit history, or institutional trust and prefer cash for flexibility or distrust. Consequently, a significant portion of the potential formal savings and credit market remains outside the system.
Planning a National Campaign for Financial Inclusion
As a new national campaign to foster financial inclusion is being planned, it’s crucial to consider these structural factors. Good intentions aren’t enough; financial literacy campaigns can be valuable, but they won’t address the root causes if not accompanied by solutions to these underlying issues.
Key Questions and Answers
- What is the main issue in Mexico’s financial inclusion? The primary challenge lies in low banking penetration, both in savings and credit, despite Mexico’s high per capita GDP.
- Why is Mexico’s financial inclusion rate low? It’s due to a combination of structural factors, including risk-averse banking practices and demand-side incentives that push people towards informality.
- What are the implications of this low financial inclusion? Mexico’s economic development hasn’t translated into a genuine democratization of the financial system, leaving a significant portion of the population without access to formal banking services.
- What should be considered in planning a national campaign for financial inclusion? Structural factors, such as banking practices and demand-side incentives, must be addressed for a successful campaign.
