FINANCIAL INCLUSION REPORT December 2009

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2 4 FINANCIAL INCLUSION REPORT December 2009 National Banking and Securities Commission President Guillermo Babatz Torres Vice-president of Regulatory Policies General Direction on Access to Financial Services Carlos Serrano Herrera, Raúl Hernández Coss, Alejandro Vázquez Zavala, Luis Treviño Garza, Michelle Audirac Kushida, Jonathan Pasten Jiménez, Ana Laura Medina Pérez Creativity and Design Natalia López Diaz, Noemí Tecanhuey Sánchez, Bernabé Zamora García Insurgentes Sur 1971, Col. Guadalupe Inn Del. Álvaro Obregón; México, D.F MEXICO

3 5 National Banking and Securities Commission President Guillermo Babatz Torres Vice-president of Regulatory Policies General Direction on Access to Financial Services Carlos Serrano Herrera, Raúl Hernández Coss, Alejandro Vázquez Zavala, Luis Treviño Garza, Michelle Audirac Kushida, Jonathan Pasten Jiménez, Ana Laura Medina Pérez Creativity and Design Natalia López Diaz, Noemí Tecanhuey Sánchez, Bernabé Zamora García Insurgentes Sur 1971, Col. Guadalupe Inn Del. Álvaro Obregón; México, D.F MEXICO

4 6 Alliance for Financial Inclusion The Alliance for Financial Inclusion (AFI) is a global network of central banks, banking supervisors and other persons in charge of public policies in over 60 developing countries. AFI provides its members with tools and funds to share, develop and implement their own knowledge in relation to successful financial inclusion strategies. Together, these countries total over 70% of the worldwide population without access to financial services. The National Banking and Securities Commission is part of AFI s Steering Committee. The disclosure of this report is possible thanks to the support of AFI. (Alliance for Financial Inclusion). AFI s contact information 16th Floor, Lake Rajada Office Complex 193/63 New Ratchadapisek Road, Klongtoey Bangkok 10110, Thailand

5 Contents Presentation Introduction 1. Conceptual framework for indicators Components of the financial inclusion policies Access to financial services and its measurement Difference between access and use of financial services Group of financial inclusion indicators 2. Macroeconomic indicators Macroeconomic indicators from sources of financial funds of the economy Macroeconomic indicators from uses of financial funds of the economy 3. Access indicators Geographic indicators Demographic indicators Indicators by State Municipal indicators Economic growth and access to financial services 4. Usage indicators Deposit taking indicators Credit indicators Indicators by State Municipal indicators Final remarks Bibliography Annex 1. Annex 2. Annex 3. Annex 4. Annex 5. Access indicators per Municipality Usage indicators per Municipality Historic indicators per State. Statistics per State. Statistics per Municipality 38

6 Presentation Even when there is no universal definition of financial inclusion, it is important to have statistic information on its different elements, particularly access and use of financial services. This information will allow us to understand the situation of the country in order to foster better public policies. Likewise, with better information, the private sector may develop goods and services to provide people. In the medium term, the gathering of information may allow assess the society s progress towards an inclusive financial system. This first report on financial inclusion presents indicators which will allow us to have parameters to measure progress in the financial service promotion. Further, the report is aimed to identify the opportunity areas existing due to the lack of financial penetration at the country and the absence of financial services in consistency with the population requirements. The macroeconomic indicators have been built with information from Banco de México, while financial access and usage indicators reaching municipal levels - were formed with data from regulatory reports sent by banking institutions to the CNBV - National Banking and Securities Commission. In the future, additional information on the use of some financial products will be included and complemented with the results of surveys to households and individuals. With this first report on financial inclusion in Mexico, the National Banking and Securities Commission seeks to contribute at the society s efforts to have a more inclusive financial system, with greater penetration and offering better services to all population segments, maintaining the stability of Mexican financial system. Guillermo Babatz Torres President National Banking and Securities Commission 39

7 Methodology Note The information on this report about branches, automatic teller machines (ATM), and financial products was obtained from regulatory reports provided by supervised institutions to the CNBV, particularly on regulatory report 24 (R.24). The information on points of sale terminals (POS) was obtained from the Bank of Mexico and does not contain municipal data. For geographic information (municipalities) the data bases of the National Institute on Statistics and Geography (INEGI) have been used. The population estimation for the year 2009 was obtained from the National Population Council (CONAPO). 40

8 Introduction The Mexican financial sector is characterized for having statistical information that is regularly submitted. For instance, there are daily and monthly indexes to measure the performance of stock exchange markets, the behavior of prices, the behavior of delinquent accounts, figures on the interest-rate differentials, transaction data, reserve information, etc. However, there is another kind of information that has not been developed yet for statistical databases: the analysis on how financial systems may become inclusive and who has access to which financial services. Recently, a lot of questions about financial inclusion are starting to be answered: Which are the main regulatory obstacles and barriers for a total access? Are these barriers more pernicious for access to households than to enterprises? Is it more relevant to increase financial service quality for those enterprises and households that already have access than or to provide basic financial services to those who have been totally excluded? For what kind of products is it desirable to begin our financial inclusion efforts? In the last years, the term financial inclusion has acquired more importance among the persons in charge of public policies. Nevertheless, there is not a universally accepted definition thereof. In spite of that, financial inclusion is always a topic in discussions about the future financial regulation and it is recognized as an element of financial and social-economic stability for it provides opportunities to the economically unprivileged 1. The concept of access to financial products and services is accepted as the first element of financial inclusion in most proposed definitions. It is through the access to financial services that households and enterprises may move their savings, obtain loans, manage risks and benefit from payment systems. There is an increasingly international recognition of social and private benefits of financial service access, and particularly of its impact in diminishing poverty. However, financial service access does not guarantee the use of such services. Individuals and companies may voluntarily decide to be excluded from the possibility of using the products and services offered by financial institutions. 1 Eswar Prasad. The Future of Financial Regulation, Brookings Global Economic Development, G-20 Summit. 41

9 Nevertheless, sometimes exclusion may be explained by the lack of knowledge on the options in the market or by the high costs of such options 2, in these cases, barriers limit the development of individuals and foster inequality. Gathering data to create indicators may help us to understand how individuals and enterprises use the options of products and services in the market. Therefore, the use of financial products and services is proposed as the second element of the financial inclusion concept. Purposes of the report This report is the first statistical analysis prepared by the CNBV in order to develop the indicators related to financial inclusion in Mexico. The development of indicators is aimed to provide information to the participants of the Mexican financial system and to foster transparency. Its conception derives from the premise that more information to financial agents may foster the development of financial products and services. By indicators we mean for the variables or specific measures which may need to be followed up due to their importance for financial inclusion. Developing access indicators may help to identify the barriers which limit the development of an inclusive financial system and may help agents to be more aware of the possible business opportunities available in benefit of the financial system s users. These indicators will be published every six months and will increase their contents as new sources of information are developed to add new indicator categories. In this first report, the series of indicators are presented in three categories: 1. Macroeconomic indicators, 2. Access indicators, and 3. Usage indicators. 2 High costs include interest rates and fees and the costs of the transactions, for example, the expense of moving in order to access the service points. 42

10 Sections of the report Section 1 presents an initial proposal for defining financial inclusion and, is intended to be used as a reference for the underlying indicators conceptual framework. Also, a theoretical framework for financial inclusion indicators is presented and will gradually be developed as information sources become available to cover financial service supply and demand. In this first report, most indicators have been developed relying in the regulatory reports received by the Commission. Section 2 contains the macroeconomic indicators at an aggregate level for savings and credit in the Mexican economy to be easily compared internationally. Finally, sections 3 and 4 of the report present the first indicators for financial service access and use in Mexico nationwide, in the states and in the municipalities. These indicators have been developed based on adult population, that is to say inhabitants aged over 15 years, according to international standards. 43

11 1. Conceptual Framework for Indicators This section describes the conceptual framework for developing the financial inclusion indicators prepared by the CNBV. Additionally, we expose the key components of public policy aimed to promote financial inclusion, some challenges identified by academic literature on the measurement of access to financial services and on the development of indicators. Finally, we describe the differences between access and use of financial services and the classification of indicators into groups. Components of financial inclusion policies Despite there is not an international consensus on a financial inclusion definition, there are certain elements that are common across all different definition proposals. For example, all of them mention that financial inclusion refers to the possibility of having access to a series of financial products and services. Likewise, they establish that it is necessary to have financial education and mechanisms for consumer protection. Finally, these definitions support the minimum characteristics that financial services most have: (financial) accessibility, quality, availability and sustainability. In some cases, financial inclusion is defined as a comprehensive access to financial services where there are no price barriers for the use of such services 3. The following table summarizes some of the definitions and proposes a work definition comprising the above mentioned characteristics. 3 World Bank. Finance for All? Policies and Pitfalls in Expanding Access, 2008, p

12 Table 1.1 Establishing a range for the definition of financial inclusion Recently, different initiatives have been trying to present a Financial Inclusion definition. Some of them are below. Definitions: 1) Financial Inclusion means having access to a group of financial products and services including credit, savings, insurances, payment systems and pensions, as well as financial education and consumer protection. The products and services have to be of high-quality, affordable, sustainable and available within a physical proximity. The low-income economically active populations need to have somehow these services. A social impact must be generated on families; such impact should be economically sustainable for financial service suppliers so micro-financial services could have economies of scale and innovation. 2) Universal and continuous access of population to diverse, adequate and formal financial services, as well as the possibility of using them according to their needs to help in their development and welfare. 3) Financial inclusion refers to the access and use of a financial product and service portfolio reaching the bulk of the adult population with clear and concise information to satisfy the increasing demand under an adequate regulatory framework. For the purposes of this report, and as long as a consensus is reached on the definition of financial inclusion, the CNBV adopts definition number 3. The following diagram shows the important elements inserted by different analysts and scholars when talking about financial inclusion. The main three components are gathered in the core: the access and use of financial services linked by payment systems allowing the concurrence of supply and demand. Surrounding these main components, there are: 45

13 financial education/literacy, consumer protection and regulation as key elements to guarantee that financial inclusion is adequately performed. Each of these three components plays an essential role in financial inclusion since it is necessary for the supply of financial products and services to reach the majority of population with clear and concise information, mechanisms to protect consumer rights and under an adequate regulatory framework that does not create barriers for the development of new products aimed to increase the supply of financial services. Graph 1.2 Financial Inclusion key components Access to financial services and its measurement The development of effective public policies worldwide to improve access to financing has been limited by the difficulties in measuring it. Among the main methodological problems to measure access there are, first the difference between access to financial services and the current use of such services by individuals and companies. Second, the problem of defining, in the case of individuals, whether access should be measured on the individual or on households. Finally, knowing the dimensions for measuring access: by type of 46

14 institution, by type of financial service or by type of product. Further, the level of access should be determined for each dimension 4. Difference between access and use of financial services Access to financial service means the existence of financial service provision channels available to all different segments of population, to wit: branches, automatic teller machines, point of sale terminals, correspondents, mobile and internet banking. The use of financial services refers to the estimate of the population that is using some kind of financial service (deposits, loans, insurances, transactions, pensions and investments) 5, that is actually reaching financial system access. Table 1.3 Difference between access and use of financial services Formal financial user Not required Population Voluntary exclusion Not used due to cultural / religious reasons Non-users of formal financial services Insufficient income / high risk Financial services Access Financial services Non access Involuntary exclusion Discrimination Information contract framework Price / Product characteristics 4 Michael S. Barr, Anjali Kumar y Robert E. Litan. Building Inclusive Financial Systems: A framework for Financial Access, Brookings Institute Press, 2007, p In different media, the words, bank service accessibility and access are indistinctively used, but we think that they limit the outreach or potential of what relay is financial inclusion. 47

15 Group of financial inclusion indicators Considering the studies performed by scholars worldwide, and particularly from the World Bank 6, there are four groups of indicators: 1. Macroeconomic, 2. Access to financial services, 3. Use of financial services, 4. Barriers. Table 1.4 summarizes the groups of indicators and the categories of each. Table 1.4 Indicator conceptual map Macroeconomic Indicators Private Credit GDP Total Deposits GDP Average Credit GDP per capita Average Deposit GDP per capita Variable Type Level Access Indicators Branches ATMs Geographic (per 1,000 km2) National POS Demographic (per 10,000 adults) State Banking agents Municipality Mobile Banking & Internet Products Type Level Usage Indicators Deposits Credit Demographic (per 1,000 adults) National Insurance/Pensions Socio-economic level State Investments Rural & urban Municipality Transactions Gender and Age Barrier Indicators Transaction Costs Distance Documentation In this first report, only the following indicators are presented. The remaining indicators will be developed as more information is available and will be included in the next reports. 6 Michael S. Barr, et.al. Building Inclusive Financial Systems: A framework for Financial Access, Brookings Institute Press, 2007, p

16 Macroeconomic indicators: Private loans / GDP, Total Deposits / GDP. Access indicators: Branches, ATMs and Point of Sale Terminals by geographic and demographic type. Branches and ATMs are presented in three different levels and Point of Sale Terminals nationwide and at state level. Usage indicators: Different fund raising products. From credit, only credit card. These are demographic and at 3 levels: National, state and municipal. 49

17 2. Macroeconomic Indicators Financial markets gather savings supply with the consumption financing demand and investment in households, enterprises and government. Additionally, financial markets complete commercial transactions, evaluating and diversifying risks. Macroeconomic indicators provide a general view on financial inclusion in an economy allowing for international comparisons. These indicators may be analyzed from the focus of the sources and uses of financial funds in the economy 7. Two indicators derived from the analytic structure were used to assess the level of financial inclusion from a macroeconomic point of view. 1. Financial System Savings for Residents (Financial Funds Source). From a particular case financial inclusion represents the source from financial funds internally derived from the private sector of a country. 2. Private Sector Financing (Uses of Financial Funds). From the financial inclusion perspective, it is is the financial intermediation within the private sector for households (consumption and housing) as well as enterprises. Both indicators are measured in terms of Gross Domestic Product at nominal prices to be assessed in comparison with other economies in a given period of time. Macroeconomic indicators from the sources of the economy s financial funds The analysis of financial statements on sectors for public, private and external sectors is a useful reference framework to measure the flow of financial funds circulating in an economy and allowing the analysis of financial inclusion growth potential in Mexico, particularly for the private sector. From the financial funds source point of view, the indicator that is mostly used to measure financial inclusion levels is financial savings in private sector through the most comprehensive monetary aggregate (M4) which are the total internal financial savings for the private sector both for residents and non-residents in the country (Table 2.1). 7 Banco de México (Central Bank). Financial System Report, July 2009, pp

18 Table 2.1 Sources of the economy s financial funds Balances as GDP s percentage Total Sources Monetary Aggregate - M4 External Financing 3/ Total In Residents Possesion 1/ Non - Residents Total Public Sector Commerci al Banks Private Sector SAR 2/ Other Source: Banco de México, Fuentes y usos de recursos financieros-saldos como porcentaje del PIB 1/ Retirement Saving Funds System, including Siefores and other Funds. 2/ Including external debt of the Federal Government, state-owned organizations and companies and external PIDIREGAS, reported by The Finance Ministry (Secretaria de Hacienda y Crédito Público - SHCP). 3/ Liabilities outside commercial banking. Excluding non-resident fund raising. 4/ Includes loans and securities issued abroad by the private sector. Even if this focus allows valuating the flows between sectors for financial inclusion this analysis defines a narrower measurement of financial savings, so savings in the financial system held by residents of the country are reflected (Table 2.2). Thus, for the purpose of analysis, the definition for savings in financial system held by residents in the country does not consider bills and coins in possession of the public in general for they are liquid assets that not necessarily represent savings in the economy, and neither considers assets held by non-residents in the country, so net savings of the country s residents are reflected. In this way, the savings of the financial system held by residents of the country comprise the following items from the monetary aggregates: 1. From the narrowest monetary aggregate -M1- checking accounts and current account and sight deposits on Banks residing in the country and Savings and Loan Companies (SAPs) are included. It is remarkable that bills and coins held by public in general are not considered since they do not necessarily represent any savings for the economy for they are totally liquid. 2. Additionally, the aggregated - M2 is included which represents internal assets held by residents, and considers internal fund raising from resident banks and 51

19 Savings and Loan Companies (SAP), as well as holdings of Public and Private Securities where holdings on Investment Companies Specialized in Retirement Funds (SIEFORES) are outstanding, together with Retirement Saving Funds outside SIEFORES and which are divided into housing funds (INFONAVIT and FOVISSSTE), retirement funds deposited in Bank of Mexico (Concentration account for IMSS and ISSSTE) and Pension Bonds of the ISSSTE which were recently created due to the amendments to the Law of the ISSSTE On the other hand, this definition does not include items comprised on monetary aggregate M3-, since they are assets held by Non-residents in the country. 4. Finally, the broadest monetary aggregate M4- includes deposits held by residents of the country in Agencies and Branches of national banks abroad. 8 Idem, p. 51. The recent increase in the share in the Retirement Savings System (SAR) is due to the impact of the Amendment to the Law of the ISSSTE during the last quarter of 2008 which resulted in an increase in the holdings of financial assets of the private sector equivalent to 1.9 percentage points of the Gross Domestic Product. Bank of Mexico. Reporte Sobre el Sistema Financiero,

20 Table 2.2 Savings of the financial system held by residents in terms of Gross Domestic Product as of June 2009 Monetary Aggeregates Components of Monetary Aggregates Internal Financial Savings held by Residents GDP % as of June 2009 M1 Narrow Monetary Aggregate 12.33% Accrued % of the GDP * Bills and coins held by public in general Not included 4.09% * Checking accounts in resident banks (total coins) 6.16% 6.16% * Current account deposits in resident banks and savings and loan companies 2.08% 8.27% M2 Internal financial assets held by residents 43.19% * Internal fund raising in resident banks and savings and loan companies 10.51% 18.78% * Public securities held by residents 1/ 22.84% 41.62% * Private securities 2/ 2.72% 44.34% * Retirement Savings Funds outside SIEFORES 3/, 4/ 7.12% 51.46% M3 Internal financial assets held by non Not included 2.61% Residents M4 Fund raising by Mexican banks branches and agencies 0.64% abroad * Fund raising by Mexican banks branches and 0.39% 51.85% agencies abroad * Fund raising by national banks branches and Not included 0.25% agencies abroad, deposits from non-residents Internal Financial Savings held by Residents 51.85% 51.85% Total Internal Savings of the financial System 55.94% Source: Banco de México, information on monetary aggregates without including the public sector. 1/ Public Securities held by Residents include securities issued by the Federal Government, Bonds issued by the Bank of Mexico (Brems) based on article 7 fraction VI of the Law of the Bank of Mexico in order to regulate liquidity on the money market; IPAB Securities (Institute for the Protection of Banking Savings), including certificates issued by the securitization of IPAB s liabilities, and Other Public Securities, including Promissory Notes and Securities Certificate Indemnification (PICS-FARAC and CBICS-FARAC), securities issued by companies and public agencies and by states and municipalities. This includes securities held by Siefores and in possession of private and particular companies. 2/ Private Securities include mortgage obligations, unsecured obligations, negotiable instruments, share certificates, medium and short term promissory notes and securities certificates issued by private resident entities. This includes securities held by Siefores and in possession of private and particular companies. 3/ Investment companies specialized in Retirement Funds (SIEFORES). Classification of securities in the portfolio of Siefores was made according to the figures of CONSAR and is compatible with the Monetary Aggregates methodology. 4/ Retirement Saving Funds outside SIEFORES include: Housing funds, retirement funds in the Bank of Mexico corresponding to IMSS and ISSSTE and ISSSTE pension Bonds. According to the new Law of the ISSSTE, Afores keep the record of the updated value of the ISSSTE Pension Bond on the workers' individual accounts. 53

21 Table 2.2 provides an example as of June 2009 of what these concepts represent in terms of Gross Domestic Product, highlighting items of public values 9 held by residents and the group of Retirement Savings Funds. From the historical perspective, from the creation of the Retirement Savings Fund System, there has been a positive evolution in these concepts in terms of a higher financial soundness. Savings may be analyzed as to the structure of the terms, assuming that for narrower monetary aggregates, as M1 (without considering bills and coins held by the public) are short term, more liquid savings and monetary aggregates are wider, and particularly those of belonging to the Retirement Savings System for they are less liquid funds designed to be used at the moment of the worker s retirement in a long term. This last element, besides making the financial market deeper, it also makes it stable and sound (Table 2.2). The highest soundness of the financial system has been reflected for instance in the case of public securities which have experienced a gradual increase in the average term of placements, for they went from an average term in 1997 lower than one year (333 days) to a term over six years (2,243 days in average) 10 on June 2009, creating thus wider investment horizons and promoting certainty and financial stability. 9 Public securities include M, Bondes, BREMS, BPAS, including Indemnification Securities Certtificates (CBICS-FARAC), securities issued by companies and public agencies and by the states and municipalities. 10 Banco de México. Annual Report 2009 and statisitic data. 54

22 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 60% Graph 2.3 Financial Savings held by Residents Figures as GDP s percentage 50% 40% 30% RSF M2 20% 10% 0% M1 (without B&C) Long term savings Short term savings National banks external deposits from residents (M4) Retirement Saving Funds M2 without Retirement Saving Funds M1 without bills and coins Total Internal Savings from Banks In order to internationally compare this type of indicators, it is considered the monetary aggregate M2, even if it is a little bit different from the savings indicator of the financial system as held by residents, since it considers bills and coins held by the public and does not considers fund raising by residents in agencies abroad, but this is not so different when dividing it by the Gross Domestic Product, on the contrary, it is a more standard statistical data which is more easily accessed internationally and allows relatively easy comparisons with other economies. Thus, the M2 statistics on 2007 GDP, before the global financial crisis, according to the information gathered by the International Monetary Fund through International Financial Statistics (IFS) reveal that even if savings in Mexico are relatively well placed in relation to other countries, many developed economies and many emerging economies have better levels of financial sa vings in terms of their GDP, which means that from a macro-economic point of view Mexico still has a potential for a higher level of savings (Graph 2.4). 55

23 M2 / GDP (%) Graph 2.4 M2 as percentage of the Gross Domestic Product Figures in billions of USD Southafrica Chile Colombia Venezuela Argentina Korea Rep Canada Australia India Mexico Brazil Russia United Kingdom China $0 $1,000 $2,000 $3,000 $4,000 GDP in billions USD Macroeconomic indicators from uses of the economy s financial funds As to the use of financial funds in the economy, the most used macroeconomic indicator is the financing level as ratio of the Gross Domestic Product. Particularly, it is frequent to assess financing to private sector. In this regard, consumption financing to households is highlighted for diminishing income and expense flows and to housing for equity investment, and also financing to companies. Table 2.5 allows analyzing how financing is distributed among private, public and external sectors. By analyzing financing within private sector, financing to enterprises is higher than financing to households, even if a good ratio of the former comes from abroad in contrast with financing to households. On the other hand, persistence of low financial through debt issuance is remarkable as a challenge to be overcome. 56

24 Table 2.5 Uses of the economy s financial funds Balances as percentage of GDP Total Uses Total Households Private Sector Total Consumption Housing Total Financial Interm. Credit Enterprises Debt Issuance External Federal Sector Public Sector States & Municipal. International Reserves Other Concepts Source: Banco de México, Sources and uses from the economy s financial funds balances as percentage of GDP. 1/ Total portfolio of financial brokers and INFONAVIT. Including restructuring programs. 2/ Total portfolio of financial brokers. Including restructuring programs. 3/ Includes internal debt (historical balance of financial requirements for public sector) reported by SHCP. 4/ Includes total portfolio of financial brokers and issuance of debt instruments. 5/ As defined by the Law of the Bank of Mexico. The analysis of financing addressed to private sector shows a favorable evolution of credit to households, particularly to consumptions, as well as housing loans. Even if credit to enterprises has been the main component of financing to private sector, after the 1995 crisis it contracted in absolute and relative terms, and has only recovered in recent years (Graph 2.6). 57

25 Credito to Private Sector / GDP Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun Graph 2.6 Internal financing to private sector in Mexico Figures as GDP s percentage Housing Empresas Consumption Internal Private Sector Financing Source: Banco de México and INEGI. Graph 2.7 Credit to private sector as percentage of Gross Domestic Product, Figures in billions of USD Southafrica United Kingdom Chile Canada Australia Korea China 60 Brazil India 40 Colombia Russia Venezuela 20 Mexico 0 Argentina $0 $1,000 $2,000 $3,000 $4,000 GDP in bllion USD Source: International Monetary Fund. International Financial Statistics (IFS)

26 In order to make an international comparison, the statistics on credit to private sector on Gross Domestic Product were used together with World Economic Indicators from the World Bank, using 2007 as the reference year for it is the year before the global financial crisis. In this regard, the observation is that in spite of the favorable trend during the last years for the private sector financing growth in Mexico, the international comparison of private sector financing generally shows that there is still a great financing growth potential in Mexico for its level is still under those of similar economies (Graph 2.7). Even if macroeconomic financial inclusion indicators allow easy and homogeneous comparisons among different regions of the world, these indicators are too aggregated to fully understand the access and use levels of financial services, as well as their evolution. Therefore, a demographic and geographic analysis within the country reflects clearly the situation and potential of the economy to promote a greater financial inclusion. 59

27 3. Access Indicators Financial service access indicators allow us to assess the penetration of the financial system in the country, and thus let us analyze whether the infrastructure of the supply of financial services is adequate for each type of population. The World Bank 11 proposes a series of indicators that may be compared internationally and so these must be used as a starting point for developing new indicators related to bank penetration. Table 3.1 World Bank s Access Indicators INDICATOR DEFINITION Penetration 1 Geographic from bank branches Number of bank branches per 1,000 kilometers 2 Demogrphic from bank branches Number of bank branches per 10,000 inhabitants 3 Geographic from ATMs Number of ATMs per 1,000 kilometers 4 Demographic from ATMs Number of ATMs per 10,000 inhabitants ants Accounts 5 Savings per cpaita Number of deposits per 1,000 inhabitants 6 Credit per cápita Number of credits per 1,000 inhabitants Proportion 7 Credit income Average size of credits in relation of GDP per capita 8 Deposit income Averge size o deposits in relation with GDP per capita Source: The World Bank Group. The conceptual indicators map proposed in the table 3.1 considers the indicators proposed by the World Bank as the basis to adequate the information existing in Mexico; however, in most cases the analysis could be extended to a municipal level. Access indicators enable us to know the banking infrastructure level (branches, ATMs, point of sale terminals, bank correspondents, internet and mobile banking - the latter will be included in further reports) related to population and by area for entering the geographic and demographic penetration of the financial system. A high demographic and geographic branch index would show that there is a high access and the possibilities of serving the demand of financial services are higher in the area. In this report, these indicators will be analyzed in three different levels: 1) nationally, to make international comparisons, 2) state level and 3) municipal level. In the scheme below the geographic relation of indicators may be observed. 11 Thorsten Beck, Asli Demirguc-Kunt and Maria Soledad Martinez Peria. Reaching Out: Access to and Use of Banking Services across Countries, 2005, p

28 Table 3.2 Access Indicator conceptual map Type of indicator Geographic Demographic Variable to measure Branches ATMs POS (1) Detail level National, State and Municipality Source: CNBV Financial service access indicator includes all institutions providing such services to the population. That is, in Mexico, commercial banks play an essential role, but it is not the only institution. There are also other institutions that may offer financial products to sectors that are not served by commercial banks. Among them, Development Banks (Bansefi and Banjército) and other savings and popular credit entities (Sofipos, Sofoles, Credit Unions, Sofomes, Cooperative Partnerships). Additionally, there is also the insurance and pension sector. Table 3.3 displays different access levels by type of institution. It also shows that there are institutions that are not regulated but may also offer financial services 12. Despite general access indicators should consider all institutions; this first report focuses on commercial banking and development banking and other regulated institutions will be included in the following reports. 12 For example, solidarity saving cajas, NGO s in microcredit sector and Sofomes. 61

29 Table 3.3 Financial Service Access by Type of Institution Served by some financial services Included in the formal financial sector Banks Other Regulated Institutions State-owned Banks Nonregulated Institutions Non served 0% Increase in served population 100% Source: Based on Kumar et. al World Bank, Geographic indicators These indicators help us characterizing the geographic penetration of financial sector. They may also be construed as an approximation of the average distance of a potential customer to the closest physical contact point. Geographic indicators are estimated based on the number of contact points for every 1,000 square kilometers. The highest the geographic penetration indicator is, the lower is the distance, and therefore access will be easier. This type of indicators has a limitation because it assumes a uniform distribution of contact points in a country; however, the analysis shows us that branches and ATMs are concentrated in urban areas of the country and are only accessed by persons living in or near the urban areas. Internationally 13, the published indicators are for the year 2005, and show the number of branches per geographic area in a range from 0.18 branches for every 1,000 km2 (the lowest distribution percentage) for countries like Bolivia, Botswana, Namibia, while there are values from 120 branches for every 1,000 km2 (the highest distribution percentage) in countries like Belgium, Holland and Singapore. The average for branches is 4.8 for every 13 Thorsten Beck, Asli Demirguc-Kunt and Maria Soledad Martinez Peria. Reaching Out: Access to and Use of Banking Services across Countries, 2005, p

30 1,000 km2. Mexico is above the average (considering the value updated to June 2009), with 5.3 branches for every 1,000 km2. For ATMs by geographic area 14, countries like Tanzania, Zambia, Nepal and Madagascar have the lowest distribution percentage with less than 0.26 ATMs for every 1,000 km2. Countries like Japan, Singapore and Korea have the highest percentage with over 253 ATMs for every 1,000 km2. The average is 10, therefore, Mexico is over the average with 15.3 ATMs for every 1,000 km2. For point of sale terminals, there is no information on the international average, but Mexico has 228 point of sale terminals for every 1,000 km2. Table 3.4 Geographic indicators at a National Level Geographic National Indicators (per 1,000 square kilometers) Branches ATMs POS Source: CNBV / June 2009 The following Mexico s map shows the geographic distribution of branches per state. For exemplification purposes, we have created 3 indicator ranges: 1) Superior: over the national average, 2) Average: from 25% below the average to the average, 3) Inferior: from zero to 75% of the indicator. 14 Ibid, p

31 Map 3.5 Number of branches per 1,000 square kilometers (km 2 ) Branches by each 1,000 square kilometer, km 2 Ranges Without a branch (1,584 municipalities) Low (<3.96 sbranches per 1,000 km 2, 350 m) Medium (between 3.96 & 5.3 per 1,000 km 2, 52 m) Superior (> 5.3 branches per 1,000km 2, 468 m) Source: CNBV / June

32 Map 3.6 Number of branches per 1,000 square kilometers (km 2 ) Branches per each 1,000 square kilometers, km 2 Ranges Without a branch (1,584 municipalities) Low (<3.96 branches per 1,000 km 2, 350 m) Medium (between 3.96 & 5.3 branches per 1,000 km 2, 52 m) Superior (> 5.3 branches per 1,000km 2, 468 m) Source: CNBV / June 2009 The West-Central region of Mexico presents indicators over the national average, while the North and Southeast regions of Mexico have a low access level indicator. Given that this is a geographic indicator, the size of the state has a negative influence for these indicators, therefore it must be used considering these points. The following graph presents the geographic indicator for every 1,000 km2 (square kilometers) from 2001 until June , only including commercial bank branches 15. A significant increase from 2006 may be observed when the annual average increase until 2008, presenting a 7% average increase going from 8,400 branches in 2006 to 9, 800 branches in Bansefi and Banjército are not included. 65

33 Graph 3.7 Historical trends of the geographic indicator 3.61 CAGR a 7 % 2.6 % Jun CAGR a : Compound Annual Growth Rate Source: CNBV. Annex 3 contains the state level information where we may find that some states like Zacatecas and Chiapas had almost no growth in the number of branches, while other states like Hidalgo and Queretaro grew by more than 70% on the total number of branches during the period from 2001 to In relation to the indicator of ATMs and Points of Sale Terminals, there is no historical information for there is data only from December 2008, and it is not possible to analyze the trend of the indicator. Demographic indicators These indicators help us capture the demographic penetration of the financial sector and are the approximate average of persons served at any contact point. Demographic indicators are estimated based on the number of contact points for every 10,000 adults. The highest it is the indicator, there are fewer potential clients by branch or ATM, but there is a better access. 66

34 Table 3.8 National Demographic Indicators Demographic National Indicators (per 10,000 adults) Branches ATMs POS Source: CNBV /June 2009 According to a study conducted by CGAP 16 (Consulting Group to Assist the Poor) in 2009, the average indicator for developed countries is 2.4 branches for every 10,000 adults and of 0.8 branches for developing countries. The same analysis found out that countries like Ethiopia, Honduras, Madagascar, Tanzania and Uganda have an indicator of barely 0.1 branches for every 10,000 adults, while countries like Austria, Belgium, Portugal, Italy and Spain have an indicator reaching more than 4.5 branches for every 10,000 adults. Mexico has 1.4 branches for every 10,000 adults, and is therefore above the average of developing countries, but quite below developed ones. 16 CGAP. Financial Access 2009: Measuring Access to Financial Services around the World, World Bank,

35 Graph 3.9 International Comparison - Number of branches for every 10,000 adults Portugal Italy Denmark Spain United States Norway Iran Hong Kong China Canada Turkey Germany Chile Uruguay Mexico Colombia Argentina Brazil Thailand Bolivia Angola Bangladesh Kenya Cambodia International Comparison Source: CGAP 68

36 The number of ATMs for every 10,000 adults for developing countries is an average of 2.3; however, countries like Bangladesh, Nepal, Pakistan and Tanzania only have 0.1 ATMs for 10,000 adults. On the other hand, developed countries have an average indicator of 7.8 ATMs for every 10,000 adults, where Canada, Japan, Portugal and the United States stand out with over 10. The Points of Sale Terminals for every 10,000 adults presents a greater dispersion since the average for developed countries is 203 and for developing countries is barely 17 Points of Sale Terminals for every 10,000 adults. Mexico has an indicator of 59 POST which means that it has an important growth potential. The following map shows the indicators of each state according to the above mentioned ranges. In this case, we observe how the North region of Mexico has indicators over the national average, mainly due to a fewer population in a wider territory. Meanwhile, the Central and Southeast regions have indicators within average ranges but the states of the South region like Guerrero, Oaxaca and Chiapas have lower indicators. Map 3.10 Number of branches per each 10,000 adults Bank Branches per 10,000 adults Ranges Without branches (1,584 municipalities) Low (<1.03 branches per 10,000 adults, 395 municipalities) Medium (between 1.03 & 1.37 per 10,000 adults, 128 municipalities) Superior (> 1.37 branches per 10,000 adults, 347 municipalities) Source: CNBV /June 2009

37 Map 3.11 Number of branches for every 10,000 adults in the country Branches per each 10,000 adults (Zoom) Ranges Without branches (1,584 municipalities) Low (<1.03 branches per 10,000 adults, 395 municipalities) Medium (between 1.03 & 1.37 per 10,000 adults, 128 municipalities) Superior (> 1.37 branches per 10,000 adults, 347 municipalities) Source: CNBV /June 2009 The following graph presents the demographic indicator trend for branches per 10,000 adults from 2001 until June The indicator includes only branches for commercial banking 17. An average growth of 6% is observed in the last years mainly due to the opening of more than 400 branches in 2006 by Banamex (137), and other 250 branches of BBVA Bancomer, Santander, Banorte, IXE, Scotiabank and Azteca. For 2007, the incorporation of new banking institutions allowed the opening of more than 1,000 branches, 400 out of which correspond to new banks such as Famsa and Coppel and the remaining to Banamex and Bancomer with 100 branches each and the others to Scotiabank, Banorte and Santander. 17 Bansefi and Banjército are not included.

38 Graph 3.12 Historical trends of the demographic indicator 0.73 CAGR a 6 % 1.4 % Jun CAGR a : Compound Annual Growth Rate Source: CNBV. Indicators per state The indicators per state comprise the geographic and demographic indicators for all branches, ATMs and Points of Sale Terminals. We may observe that only 5 states have at least one bank in the total (100%) of its municipalities. In the vast majority of the Mexican states the percentage of their municipalities with bank branches varies from 40% to 60%, but there are extreme cases like Oaxaca where only 6% of its municipalities have a bank. As it has already been mentioned, these indicators must be taken with some reserves since, for example, in the case of Mexico City, and due to its small surface, the geographic indicators are far above all other states; however, demographic indicators reflect better the presence of financial service points. On the contrary, states like Baja California Sur have very few population, its demographic indicators are above all others.

39 Source: CONAPO and CNBV / June Table 3.13 Access Indicators per Mexican - State

40 Baja California Baja California Sur Mexico City Sinaloa Tabasco Guanajuato Quintana Roo Campeche Jalisco Colima Coahuila Nayarit Queretaro Nuevo Leon Mexico Morelos San Luis Potosi Tamaulipas Michoacan Aguascalientes Hidalgo Zacatecas Durango Guerrero Veracruz Chihuahua Chiapas Sonora Tlaxcala Puebla Yucatan Oaxaca Graph 3.14 Percentage of Municipalities with Bank Branches by State 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: CNBV /June 2009

41 Source: CNBV & CONAPO /June 2009 Table 3.15 Access Indicators per State

42 Baja California Sur Mexico City Sinaloa Tabasco Guanajuato Aguascalientes Quintana Roo Nayarit Baja California Colima Coahuila Campeche Jalisco Nuevo Leon Zacatecas Mexico Tamaulipas Morelos Queretaro Hidalgo Durango San Luis Potosi Chihuahua Michoacan Veracruz Chiapas Guerrero Sonora Tlaxcala Yucatan Puebla Oaxaca Graph 3.16 Percentage of Municipalities with Automated Teller Machines 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: CNBV /June 2009 Another way of analyzing these indicators is by geographic zone where states are gathered in groups of 6 according to the classification of the Mexican National Development Plan: South-Southeast, Central, West Center, Northeast and Northeast. Mexico City is separately considered due to the high population and financial service concentration which causes deviations for the indicator. Thus, graph 3.17 shows the average demographic indicator for each region in relation to bank branches. Graph 3.17 Number of branches for every 10,000 adults North-East North-West Central-West Central South-SouthEast Mexico City Source: CNBV /June 2009

43 Graph 3.18 Number of branches for every 1,000 km2 1, North-East North-West Central-West Central South-SouthEast Mexico City Source: CNBV /June 2009 Municipal indicators Annex 1 show tables by each state of the country with their municipalities and geographic and demographic indicators, both for bank branches and ATMs. As for now, there is no number of Points of Sale Terminals at a municipal level. These indicators allow a more detailed analysis of the areas with lower access to financial services. The following table shows a classification by municipalities according to the size of the population. This classification is aimed to analyze indicators without the deviation from comparing municipalities with high population density with lower density municipalities. For the analysis of these indicators, six types of localities are defined with the following criteria: Table 3.19 Classification of municipalities by inhabitant range Type of Population Inhabitants Range Rural 0 5,000 In transition 5,001 15,000 Semi-urban 15,001 50,000 Urban 50, ,000 Semi-metropolitan 300,000 1,000,000 Metropolitan 1,000,000 - Source: CNBV