Report No. 32418-MX

Mexico
Broadening Access to Financial Services Among
The Urban Population: Mexico City's Unbanked
(In Two Volumes) Volume II: Annexes

September 30, 2005


Colombia and Mexico Country Management Unit
Finance, Private Sector and Infrastructure Department
Latin America and the Caribbean Region




Document of the World Bank


                          ABBREVIATIONS


ATM        Automated Teller Machine
cco        Check Cashing Outlets
CDFI       Community Development Financial Institution
CDVC       Community Development Venture Capital
CFNI       Chartered non-bank intermediaries
CRA        Community Reinvestment Act
CNBV       Comisi6n Nacional Bancaria y de Valores
CONDUSEF   Comisi6n Nacional para la Protecci6n y Defensa del Usuario de
           Servicios Financieros
DANE       Departamento Administrativo Nacional de Estadadistica
EFT        Electronic FundTransfer
ESW        Economic Sector Work
GDP        Gross Domestic Product
IDA        Individual Development Accounts
IDB        Inter-American Development Bank
IFS        Institutional Financial Self-sufficiency
IMF        International Monetary Fund
INEGI      Instituto Nacional de Estadistica, Geografia e Informaci6n
PAB        Institute for Bank Savings
LMI        Low and Moderate Income
MESBIC     Minority Enterprise Small Business Investment Company
MFI        Microfinancial institutions
NBFI       Non-Bank Financial Institutions
NGO        Non-governmental organizations
OED        Operations Evaluation Department
ROSCAS     Rotating Savings and Credit associations
SLAs       Credit Unions and Savings and Loan Associations
SME        Small and MediumEnterprise
SOFOLES    Sociedad Financierade Objeto Limitado (Mortgage associations)


                                  TABLE OF CONTENTS

                                                                                                             Page

ANNEX 1:Analysis of FinancialServices Demand: Survey Tables                                                    5
Section 1. Basic Information .......................................................................           6

Section 2. Indicators of Access to Financial Institutions               ...................................    8

Section 3. Deposits     ................................................................................       10

Section 4. Payments and interaction with the financial system ...............................                  18

Section 5. Loans: Householdassets with the financial system ...............................                    32

                                                                                                               38
the last 5 years crossed with being banked or un-bankedexcept where indicated .........
 Section 6. Profile of the un-banked (Income. employment. education and well-being in


 Section 7. Potential Bank Clients ...............................................................             47

 Annex 2: Analysis of FinancialSystem: Supply Tables                                                          49
 Table 1Market Share and Assets of Mexico's Commercial Banks .........................                         50

 Table 2 Geographic Concentration of Commercial Bank Deposits by Type ................ 50

 Table 3 Distribution of Basic Financial Products in Mexico City among Biggest Banks..                         51

 Table 4 Bank Branches inMexico City                 ....................................................      51

 Table 5 Geographic Distribution of Bank Branches ...........................................                  52

 Table 6 Restrictions to Opening a No Interest Checking Account                    .........................   52

 Table 7 Restrictions to Opening an Interest Checking Account                      .........................   53

 Table 8 A. Return on a Savings Account              ....................................................      53

 Table 8 B Return on a Savings Account ........................................................                54

 Table 9 Additional Charges of ATM and Electronic Banking Operations ..................                        54

 Table 10 Affordability of Bank Products by Income Quartile .................................                  55

 Table 11Comparison of Bank Product Affordability Mexico vs USA ......................                         55

 Table 12 Commercial Banks Focus on High EndMarket .....................................                       56

Annex 3: Literature Review                                                                  57


A.   Access issues as viewed inrecent publications inthe USA .........................       58

                                                                                             64
B.  Access to financial services as viewed from developing countries ..................

C.  Access to financial services and poverty reduction   ..................................  66

Annex 4: Bibliography                                                                        68

Annex 5: Use of Financial Services in5 Mexico Cities (BIMSA                                  7
Survey)

Annex 6: Survey Questionnaire (InegWnam Survey)                                              77

ANNEX 1Analysis of FinancialServices Demand: Survey Tables




                            5

Section 1:BasicInformation
                                      Table 1.1 Relationshipto the head of the household
                                                                                                         CumulativePercent
I    I
     lsame person                                                           1801      151            151                 15
      SpouseI partner                                              IIIFrequency Percent
                                                                               I        I Valid Percent I

                                                                            6351      531            531                 68
      Son /daughter                                                         2871      241            241                 92
      Parents,grandparentsor in-laws                                         38      3.2             3.2                95.2

Valid Grandson,daughter-in-lawor son-in-law                                  27      2.3             2.3                97.4
      Brother                                                                15      1.3             1.3                98.7
      Uncle,cousin, nephew, brother-in-lawor sister-in-law                    14     1.2             1.2                99.8


      Maid                                                         I                 0.11            0.11               100
      Total                                                                 11981    1001           1001


I                                                        Table 1.2 Sex
                                                                   I FrequencyIPercentI   Valid Percent ICumulativePercent
      Man                                                                   235      19.6           19.6                19.6
Valid Woman                                                                 963     80.4            80.4                 100
      Total                                                                 1198     100            100



I                                                        Table 1.3 Age
                                                                   I  Freauencv Percent
                                                                                I        IValid Percent I CumulativePercent I
      From 18 to 36 years                                                   648      54.1           54.1                54.1
      From37 to 55 years                                                    351      29.3           29.3                83.4
Valid From 56 to 74 years                                                    168       14            14                 97.4
      From 75 to 91 years                                                     31      2.6            2.6                 100
     (Total                                                        I        11981    1001            1001           ~~~




                                                     Table 1.4 Civil Statue




                                                 Table 1.5 Number of children
                                                                      Frequency Percent   Valid Percent   CumulativePercent
      None                                                                   263       22             22                  22
      From 1 to 2 children                                                   286     23.9           23.9                45.8

Valid From3 to 5 children                                                    313     26.1           26.1                  72
      Morethan 5 Children                                                    100      8.3            8.3                 80.3
      Not specified                                                          236     19.7           19.7                 100
      Total                                                                 1198     100             100


                                                      Table 1.6 Education




                                                                6

iztapalapa                   23.1%  0.8%   100%   3,998  1,773,343 10.4%   10.1%
Ecatepecde Morelos   68.9%   30.3%  0.8%   100%   3,812  1,622,697 9.6%    9.9%
Gustavo A. Madero    73.5%   24.1%  2.4%   100%    4,485 1,235,542 7.3%    6.9%
Nezahualcoyotl       77.9%   19.8%  2.3%   100%    4,448 1,225,972 7.2%    7.2%
Naucalpan            65.0%   31.7%  3.3%   100%    4,860  858,711  5.1Yo   5.0%
Tlalnepantla         68.4%   29.8%  1.8%   100%    4,766  721,415  4.2%    4.8%
Alvaro Obregon       87.8%   12.2%  0.0%   100%    4,821  687,020  4.0%    3.4%
Coyoac5n             63.9%   26.4%  9.7%   100%    5,968  640,423  3.8%    6.0%
Tlalpan              72.7%   24.2%  3.0%   100%    5,255  581,781  3.4%    5.5%
Cuauhtemoc           74.5%   23.4%  2.1%   100%    5,290  516,255  3.0%    3.9%
Chimalhuacan         92.3%   7.7%   0.0%   100%    3,312  490,772  2.9%    2.2%

Atizapan de Zaragoza
                     78.9%   21.1%  0.0%   100%    5,125   467,886 2.8%    1.6%
Venustiano Carranza  71.4%   28.6%  0.0%   100%    4,576   462,806 2.7%    2.9%
Cuautitlan lzcalli   47.1Yo  47.1%  5.9%   100%    5,084   453,298 2.7%    2.8%
Azcapotzalco         78.3%   21.7%  0.0%   100%    4,946   441,008 2.6%    3.8%
Tultitlan            66.7%   33.3%  0.0%   100%    4,070   432,141 2.5%    2.0%
lztacalco            79.2%   20.8%  0.0%   100%    4,603   411,321 2.4%     2.0%
XochimiIco           66.7%   33.3%  0.0%   100%    4,404   369,787 2.2%     0.5%
Benito Juarez        66.7%   28.6%  4.8%   100%    7,503   360,478 2.1Yo    1.8%
Miguel Hidalgo       66.7%   14.3%  19.0%  100%    5,850   352,640 2.1%     1.avo
Valle de Chalco      86.5%   13.5%  0.0%   100%    3,323   323,461 1.9%     3.1%
Tlahuac              63.6%   36.4%  0.0%   100%    4,786   302,790 1.8%     0.9%
Nicolas Romero       84.0%   12.0%  4.0%   100%    3,964   269,546  1.6%    2.1%
Coacalco             50.0%   33.3%  16.7%  100%    5,047   252,555  1.5%    1.5%
MagdalenaContreras   80.0%   13.3%  6.7%   100%    4,549   222,050  1.3%    1.3%
Chalco               80.0%   20.0%  0.0%   100%    3,526   217,972  1.3%    0.8%
La Paz               66.7%   33.3%  0.0%   100%    4,021   212,694  1.3%    0.3%
Texcoco              58.3%   25.0%  16.7%  100%    4,441   204,102  1.2%    1.O%
Huixquilucan         68.8%   31.3%  0.0%   100%    5,481   193,468  1.1Yo   1.3%
Tecamac              80.0%   20.0%  0.0%   100%    4,370   172,813  1.0%    0.4%
Cuajimalpade Morelos 85.7%   14.3%  0.0%   100%    4,786   151,222  0.9%    0.6%
Zumpango             60.0%   40.0%  0.0%   100%    3,988    99,774  0.6%    0.4%
Milpa Aka            50.0%   25.0%  25.0%  100%    3,315    96,773  0.6%    0.3%
Tultepec             75.0%   25.0%  0.0%   100%    4,555    93,277  0.5%    0.3%
Teotihuacan          100.0%  0.0%   0.0%   100%    3,895    44,653  0.3%    0.8%
Chiautla             70.0%   20.0%  10.0%  100%    3,784    19,620  0.1%    0.8%




                                         7

Section 2: Indicators of Access to Financial Institutions

                                    Frequency Percent    Valid Percent    Cumulative Percent
         With bank account                284       23.7           23.7                  23.7
 Valid   Without bank account             914       76.3           76.3                   100
       !Total                     I      11981      1001            1001                     I

                                    Frequency Percent    Valid Percent    Cumulative Percent
         Yes                               115       9.6             9.6                  9.6
 Valid   No                              1083       90.4           90.4                   100
         Total                            1198      100             100


               Table 2.3 Financial accounts: Do you have a Checkingaccount?
                                  ,IFreauency
                                    ..--I----- Valid Percent
                                              IPercent I                I Cumulative Percent

I
IValid  I                         I                                                          I
                                          11431     95.41
I       INo
        I                                                           95.41I                1001I
        ITotal                    I       11981     1001            1001

              Table 2.4 Financial accounts: Do vou have an Investmentaccount?
I                                 I Freauencv I Percent I Valid Percent I Cumulative Percent I
         Yes                                i a      1.5             1.5                   1.5
 Valid   No                               1180      98.5            98.5                  100
         Total                            1198      100             100



                                    Frequency   Percent   Valid Percent   Cumulative Percent
         Yes                               131      10.9            10.9                  10.9
 Valid   No                               1067      89.1            89.1                  100
         Total                            1198       100             100




I                 Table 2.6 Financial accounts: Do you have Directed saving
                                  I Freauencv  IPercent I Valid Percent I Cumulative Percent  I
         Yes                      I           71     0.61            0.61                  0.6
IVaIid  N o                               11911     99.41
                                                        .           99-41
                                                                        .                 Innl
                                                                                           .--


                        Table 2.7 Why don't you have a bank account?




                                                       8

I  Table 2.8 Basic services & Financialservicescloseto and in the neighborhood:Casa de Cambio
                                    I Freauencv Percent
                                                 I         I Valid Percent  I Cumulative Percent I
I          IYes                     I         1761     14.71            14.71                14.71I
 Valid      No                                974      81.3             81.3                   96
                                               48         4                4                  100
I           Total
            9                                1198      100               100


         Table 2.9 Basic services & Financialservicesclose to and in the neighborhood:ATM
                                    IIFrequency Percent
                                                 I         I Valid Percent  I Cumulative Percent

I          I                                  4691     39.11            39.11                39.1I
 Valid      No                                709      59.2             59.2                 98.3
            9                                  20       1.7              1.7                  100
            Total                            1198      100               100



                                      Frequency Percent
                                                 I         I Valid Percent    Cumulative Percent
            Yes                               4441     37.11            37.1                 37.1
                                              7331     61.21            61.2                 98.2
 \/olirl    No
                                    I                                     .SI
 ."I,"
                                               211      1.81             1                    100
                                             11981     1001              1001




I                                                                                                1




                                      Frequency    Percent   Valid Percent    Cumulative Percent
            Yes                                21       1.8               1.8                  1.8

 Valid      No                               1050      87.6              87.6                 89.4
            9                                 127      10.6              10.6                 100
            Total                            1198       100              100




                                      Frequency    Percent   Valid Percent    Cumulative Percent
            Yes                                65       5.4               5.4                  5.4

 Valid      No                               1015      84.7              84.7                 90.2
            9                                 118       9.8               9.8                  100
            Total                            1198       100              100




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Section 4: Payments and Interaction with the Financial System

Responses Broken Down According to Being Banked or Unbanked


                      Table 4.1 Payments: By telephone
                                                                        Total
 I                      I With bank account  IIWithout bank account   I       I


                                      99.60%
 Total                                   245
                                     100.00%


                       Table 4.2 Payments: By internet




              Table 4.3 Payments: In person-financial institution
                                                                        Total
                                             I
                          With bank account     Without bank account

         Yes                              61                        122     183
                                      24.90%                     19.20% 20.80%
         No                               184                       514     698
                                      75.10%                     80.80% 79.20%
  Total                                  245                        636     881
                                     100.00%                    100.00% 100.00%



                                                                        Total

                          With bank account     Without bank account

         Yes                              191                       530     721
                                      78.00%                     83.30%  81.80%
         No                               54                        106     160
                                      22.00%                     16.70%  18.20%
  Total                                   245                       636     881
                                     100.00%                    100.00% 100.00%




                          With bank account     Without bank account




                                      99.20%
  Total                                   245                       636
                                     100.00%

                                                            18

Breakdown According to Response


                  Table 4.1 Payments: By telephone
                                                               Total
                           With bank  I   Without bank
                           account           account


                                50.00%              50.00%      100.00%


                                27.80%              72.20%      100.00%
Total                              245                  636
                       I        27.80%1             72.20%)     1OO.OO%l




                           With bank      Without bank
                           account           account
        Yes                          3                     1           4
                                75.00%              25.00%      100.00~/0
        No                         242                  635          877
        I              I        27.60%              72.40%      100.00%l
Total                  t           2451                 6361         881
                                27.80%(             72.20%(     100.00%


          Table 4.3 Pavments: In oerson-financial institution

                           With bank      Without bank
                           account           account




                                   2451                 6361         881
                                27.80%1             72.20%1      100.00%


               Table 4.4 Pavments: In oerson-suoolier
                                                               Total    I
                           With bank  I Without bank




Total                              2451                 6361
                                27.80%1             72.20%1



                                                               Total
                          With bank       Without bank
                           account           account
        Yes                          2                                 2
                               100.00%                           100.00%
        No                         243                  636          879
                                27.60%              72.40%       100.00%
Total                              245                  636          881
                                27.80%              72.20%       100.00%

                                                             19

Responses Broken Down According to Being Banked or Unbanked


                                                                        Total

                        With bank account      Without bank account

      Yes                                  1                                  1
                                      0.40%                              0.10%
      No                                 273                 ~    ~~
                                                                    881    1154
                                     99.60%                   100.00%   99.90%
Total                 I                  274                        881    1155
                                    1OO.OO%l                  100.00%l 100.00%




                        With bank account      Without bank account
I     Yes                                  3                          1       4
                                      1.10%                    0.10%     0.30%
      No                                 271                        880    1151
                                     98.90%                   99.90%     99.70%
                                         2741                       881)   1155
                                    1OO.OO%l                  100.00%~100.00%




                        With bank account      Without bank account


                                     20.10%
                                         219                        743
                                     79.90%
Total                                    274
                                    100.00%


            Table 4.9 Electricity Payments: In person-supplier
                                                                        Total

                        With bank account      Without bank account

      Yes                                226                        759     985
                                     82.50%                    86.20%    85.30%
      No                                  48                        122     170
                                     17.50%                    13.80%    14.70%
Total                                    2741                       8811   1155
                                    100.00%(                  1OO.OO%l  100.00%


                  Table 4.10 Electricitv Pavments: ATM
                                                                        Total

                       With bank account       Without bank account

      No                                 274                        881    1155
                                    100.00%                   100.00% 100.00%
Total                                    274                        881    1155
                                    100.00%                   100.00% 100.00%




                                                             20

BreakdownAccording to Response


                                                             Total
                         With bank        Without bank
                          account            account
         Yes                          1                              1
                               100.00%                        100.00%




                      1         23.70°h1           76.30%1    100.00%1


             Table 4.7 Electricity Payments: By internet
                                                             Total
                         With bank        Without bank
I                     I   account      II    account      I          I

                                75.00%             25.00%     100.00%


                                23.50%             76.50%     100.00%
 Total                              274                           1155
                                23.70%             76.30%     100.00%




                         With bank        Without bank
                          account            account


                                28.50%
                                    219




                         With bank        Without bank
                          account            account
         Yes                        226                759         985
                                22.90%             77.10%      100.00%
         No                          48                122         170
                                28.20%             71.80%      100.00%
 Total                              2741               8811       1155
                                23.70%(            76.30%1     100.00%


               Table 4.10 Electricitv Pavments: ATM
                                                             Total
                         With bank     I  Without bank                I
                          account            account
         No                         274                881        1155
                                23.70%             76.30%      100.00%
 Total                I             274                881        1155
                                23.70%1            76.30%1     100.00%




                                                           21

ResponsesBroken Down According to Being Banked or Unbanked

            Table 4.11 Water supply Payments: By telephone
                                                                  Total
                     I                   I
                       With bank account I Without bank account I


     I                             99.60%                 100.00% 99.90%
Total                                 271                     854    1125
                                  100.00%                 100.00% 100.00%



                                                                  Total

                       With bank account   Without bank account

      Yes                               2                               2
                                    0.70%                          0.20%
      No                              269                     854    1123
                                   99.30%                 100.00%  99.80%
Total                                 271                     854    1125
                                  100.00%                 100.00% 100.00%



                                                                  Total

                       With bank account   Without bank account

      Yes                              46                     133     179
                                   17.00%                  15.60%  15.90%
      No                              225                     721     946
                                   83.00%                 84.40%   84.10%
Total                                 271                     854    1125
                                  100.00%                 100.00% 100.00%




                       With bank account   Without bank account

      Yes                             228                     731     959
                                   84.10%                  85.60%  85.20%
      No                               43                     123      166
                                   15.90%                  14.40%  14.80%
Total                                 271                     854     1125
                                  100.00%                 100.00% 100.00%




                       With bank account   Without bank account




                                   99.60%
Total
                                  100.00%


                                                         22

BreakdownAccording to Response


                                                                    -
                                                            Total
                         With bank      Without bank
                          account          account
         Yes                         1                              1
                              100.00%                        100.00%
         No                        270                854        1124
                               24.00%             76.00%     100.00%
 Total                             271                854        1125
                               24.10%             75.90%     100.00%


            Table 4.12 Water supply Payments: By internet
                                                            Total
                         With bank    I Without bank
                          account          account
         Yes                         2                              2
                              100.00%                        100.00%
         No                        269                854        1123
                               24.00%             76.00%     100.00%
 Total                             271                854        1125
                       I       24.10Y0l           75.90%1    100.00%



                                                            Total    I
                         With bank    I Without bank
                          account          account
         Yes                        46                133         179
                               25.70%             74.30%     100.00%
         No                        225                721         946
                               23.80%             76.20%     100.00%
 Total                             271                854        1125
                               24.10%             75.90%     100.00%




                         With bank      Without bank
                          account          account
         Yes                       228                731         959
                               23.80%             76.20%      100.00%
         No                         43                123         166
                               25.90%             74.10%      100.00%
 Total                             271)               8541       1125
                               24.1O%(            75.90%1     100.00%


              Table 4.15 Water SUDD~VPavments: ATM
                                                            Total
                         With bank    I Without bank                 I
                       I          .   I                  I           I




                               24.00%         *   76.00%      100.00%
 Total                             271                854        1125
                               24.10%             75.90%      100.00%
                                                         23

Responses Broken Down According to Being Banked or Unbanked

                         Table 4.16 Food Pavments: Bv teleDhone
                              I With bank account I  Without bank account      I
         ~    ~~~                                                         ~
          Yes                                     1                                      1
                                             0.40%                                  0.10%
          No                                   283                          911       1194
                                            99.60%                   100.00%       99.90%
Total                                          284                          911       1195
                                           100.00%                   100.00% 100.00%



                                                                                   Total

                                With bank account    Without bank account

          Yes                                    2                                       2
                                             0.70%                                  0.20%
          No                                   282                          911       1193
                                            99.30%                   i o o . o o ~ ~99.80%
Total                                          284                          911       1195
                                           100.00%                   100.00% 100.00%


                 Table 4.18 Food Payments: In person-financial institution


                                With bank account    Without bank account

          Yes                                    9                           23         32
                                             3.20%                      2.50%        2.70%
          No                                   275                          a88       1163
                                            96.80%                     97.50%      97.30%
Total                                          284                          911       1195
                                           100.00%                    100.00% 100.00%


                      Table 4.19 Food Payments: In person-supplier


                                With bank account    Without bank account

          Yes                                  223                          743        966
                                            78.50%                     a i .6O% 80.80%
          No                                    61                          168        229
                                            21.50%                     i a . 4 0 ~ ~19.20%
Total                                          284                          911       1195
                                           100.00%                    100.00% 100.00%




                                With bank account    Without bank account

          No                                   284                          911       1195
                                           100.00%                    100.00% 100.00%
Total                                          284                          911       1195
                                           100.00%                    100.00% 100.00%




                                                                     24

BreakdownAccording to Response

              Table 4.16 Food Payments: Bytelephone




               Table 4.17 Food Pavments: Bv internet




                                                          Total
                          With bank     Without bank
                           account         account
         Yes                         9               23         32
                               28.10%            71.90%    100.00%
         No                        275              888        1163
                               23.60%            76.40%    100.00%
Total                              2841             9111       1195
                               23.80Y01          76.20%1   100.00%


            Table 4.19 Food Payments:In person-supplier
                                                          Total
                          With bank     Without bank
                           account         account


                               23.10%            76.90%    100.00%

                       I                                       229
                               26.60%1           73.40%1   100.00%1
Total                             2841              9111       1195
                               23.80%1           76.20%)   100.00%


                  Table 4.20 Food Payments: ATM
                                                          Total
                          With bank  I  Without bank




Total                             2841              9111       1195
                               23.80%1           76.20%1   100.00%




                                                       25

Responses Broken Down According to Being Banked or Un-banked


                                                                             Total

                            With bank account     Without bank account

        No                                  205                        646       851
                                       100.00%                   100.00% 100.00%
 Total                                      205                        646       851
                                       100.00%                   100.00% 100.00%



                                                                             Total

                            With bank account     Without bank account

        No                                  205                        646       851
                                       100.00%                   100.00% 100.00%
 Total                                      205                        646       851
                                       100.00%                   100.00% 100.00%


       Table 4.23 Health expenditure Payments: In person-financial institution
                                                                             Total
                          I                     I
                            With bank account   I Without bank account     I        I
        Yes                                   4                         22        26
                                          2.00%                     3.40%      3.10%
        No                                  201                        624       825
                                        98.00%                     96.60%     96.90%
 Total                                      205                        6461      8511
                                        100.00%                   1oo.oo~o~  100.00%


II          Table 4.24 Health expenditure Payments: In person-supplier
                                                                              Total
                           I                    I
                            With bank account   I Without bank account     I        I
        Yes                                 162                        524       686
                                        79.00%                     81.10%     80.60%
        No                                   43                        122       165
                                        21.OO%                      18.90%    19.40%
 Total                                      205                        646       851
                                        100.00%                   100.00% 100.00%




                            With bank account     Without bank account




                                        100.00%
 Total                                                                 646
                                        100.00%




                                                              26

BreakdownAccording to Response


                                                           Total
                         With bank       Without bank
                          account          account
        No                         205              646         851
                               24.10%            75.90%     100.00%
Total                              2051             6461        851
                               24.1O%l           75.90%)    100.00%



                                                           Total
                        With bank        Without bank
                          account          account
        No                         205              646         851
                               24.10%            75.90%     100.00%
Total                              205              646         851
                               24.10%            75.90%    .100.00%




                        With bank        Without bank
                          account          account
       IYes           I                              221




Total                 t            2051             6461        851
                               24.1O%l           75.90%1    100.00%




                        With bank        Without bank
                          account          account
        Yes                        162              524         686
                               23.60%            76.40%     100.00%
        No                         43               122         165
                               26.10%            73.90%     100.00%
Total                             2051              6461
                               24.1OY0l          75.90Y0I


           Table 4.25 Health exDenditure Pavments: ATM




                                                         27

Responses Broken Down According to Being Banked or Unbanked




        Other                             5                             1               2              I
                                     3.10%                          0.90%           0.40%          0.809.

rotat                                   160             222            110            485            97
                                    100.00%        100.00%        100.00%         100.00%        100.009.

  Table 4.27 If you receive your incomewith check, how do you usually change it? Crossed with Banked or
                                                Unbanked




        Table 4.28 How would you prefer to receive your income? Crossed with Banked or Unbanked



                                                            bank account




                                                                       28

Breakdown According to Response

                 Table 4.26 How do you receiveyour income? Crossed with Bankedor Unbanked
                                                     Type of saving
                                           I                       I             I
                        People with bank     Peplewith informal      Peoplewith   Peoplewithout
                      account and without    savings and without    bank account  bank account     Total
                        informal savings       bank account         and informal  and informal
                                                                      savings       savings




                        People with bank                             People with  People without
                                             savings and without
                                             Peplewith informal
                      account and without                           bank account  bankaccount      Total

                         informal savings      bank account          and informal  and informal
                                                                      savings        savings

     Current account                      9                       4             14              3        30
     deposit                        30.00%                  13.30%          46.70%        10.00%    100.00%
     Savings account                     57                      17             34            43        151
     deposit                        37.70%                  11.30%          22.50%        28.50%    100.00%
                                         RQ                    io')
                                                                                "V
                                                                                cn           A i l      791
     Cash payment                        VV                     IY L                         7 ,I       # G I

                                      9.40%                 26.60%           6.90%        57.00%    100.00%

     Check payment                       21                       6             10            20         57
                                    36.80%                  10.50%          17.50%        35.10%    100.00%

     Other                                5                       3              2              7        17
                                    29.40%                  17.60%          11.80%        41.20%    100.00%

Total                                   160                    222             110           484        976
                                    16.40%                  22.70%          11.30%        49.60%    100.00%




                                                                    29

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Section5: Loans, HouseholdAssets, Purchasesand Other Loans



                                                                        Frequency Percent Valid Percent  Cumulative Percent
        Yes                                                                    178    14.9          14.9                14.9
   Valid No                                                                   1020   85.1           85.1                 100
        Total                                                                 1198    100            100



                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                   52      4.3           4.3                 4.3
   Valid No                                                                   1146    95.7          95.7                 100
         Total                                                                1198    100            100



                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                    3      0.3           0.3                 0.3
   Valid No                                                                   1195    99.7          99.7                 100




                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                    92     7.7           7.7                  7.7
   Valid No                                                                   1106    92.3          92.3                 100
         Total                                                                1198    100            100



                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                     6     0.5           0.5                  0.5
   Valid No                                                                   1192    99.5          99.5                 100
         Total                                                                1198    100            100



                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                   133    11.1           11.1                11.1
   Valid No                                                                   1065    88.9          88.9                  100
         Total                                                                1198     100           100



                                                                        Frequency Percent Valid Percent  Cumulative Percent
         Yes                                                                    48       4             4                    4
   Valid No                                                                   1150     96             96                  100
         Total                                                                1198     100           100


                                                      Table 5.8 Informalsavinas
                                                                        Frequency Percent  Valid Percent  Cumulative Percent
         With formal savings                                                   369    30.8           30.8                30.8
   Valid Without formal savings                                                829    69.2           69.2                 100
         Total                                                                1198     100           100



                                                                        Frequency Percent  Valid Percent  Cumulative Percent
         With some kind of savings                                             540    45.1           45.1                45.1
   Valid Without any kind of savings                                           658    54.9           54.9                 100
         Total                                                                1198     100           100



                                                                        Frequency Percent  Valid Percent  Cumulative Percent

         Peoplewith bankaccount and without informal savings
                                                                          '    171    14.3           14.3                14.3


   Valid Peoplewith informalsavings and without bank account                   256    21.4           21.4                35.6
         Peoplewith bankaccount and with informal savings                      113     9.4            9.4                45.1
         Without bank account and without informal savings                     658    54.9           54.9                 100
         Total                                                                1198     100           100

                                Frequency         Percent     Valid Percent    Cumulative Percent
        Yes                               23              1.9            17.7                  17.7
Valid    No                              107              8.9            82.3                   100
        Total                            130             10.9            100
Missing  System                        1068              89.1
Total                                  1198               100



                                Frequency         Percent      Valid Percent   Cumulative Percent
         Yes                  ----         3              0.3             2.3                   2.3
Valid    No                              127             10.6            97.7                   I00
        Total                            130             10.9            100
Missing  System                        1068              89.1
Total                                  1198               100



                                Frequency         Percent      Valid Percent    Cumulative Percent
         Yes                               3              0.3             2.3                   2.3
Valid    No                              127             10.6            97.7                   100
        Total                            130             10.9            100
Missing  System                        1068              89.1
Total                                  1198               100


              Table5.14 Did you apply for credit to a savings and loan association?
                              I Fmquency
                                ..-.        I     Percent    I Valid Percent I  CumulativePercent
        IYes                  I            11             0.11            0.81                   0.81
Valid    No                              129             10.8            99.2                   100
                                         130             10.9            100
-Total   Total
Missing  System                        1068              89.1
                                       1196               100




                                Frequency         Percent      Valid Percent    CumulativePercent
         Yes                               3              0.3             2.3                    2.3
Valid    No                              127             10.8            97.7                   100
         Total                           130             10.9             100
Missing  System                        1068              89.1
Total                                  1198               100



                                Frequency         Percent      Valid Percent    CumulativePercent
Valid   ]No                              130             10.9             100                   100
Missing (System                        1068              89.1
Total                                  1198               100



                                Frequency         Percent      Valid Percent    CumulativePercent
         Yes                               1              0.1             0.8                    0.8
Valid    No                              129             10.8            99.2                    100
         Total                           130             10.9             100
Missing  System                        1068              89.1
Total                                  1198               100




                                                                        33

                             Frequency      Percent       Valid Percent  CumulativePercent
 Valid    INo                        130           10.9             100                  100
 Missing   ISystem                  1068           89.1
 Total                              1198            100



                             Frequency      Percent       Valid Percent  CumulativePercent
            Yes                       2             0.2              1.5                 1.5
 Valid      No                       128           10.7             98.5                 100
            Total                    130           10.9             100
 Missing    System                  1068           89.1
 Total                              1198            100



                             Frequency      Percent       Valid Percent  Cumulative Percent
 Valid    INo                        130           10.9             100                  100
 Missina   ISvstem                  1068           89.1
ITotal                     I        11981           1001                I                   I
        ~




                     Table 5.22 Did you applyfor credit to a friend?
                           I Freauencv  I   Percent     I Valid Percent ICumulative Percent 1
            Yes            I           81           0.7)             6.21                6.2
 Valid      No                       1221          10.21            93.81                100
           ITotal          I         1301          10.91             1001
 Missina   ISvstem                  10681          89.11                I
ITotal                     I        11981           1001                I                   I


                             Frequency      Percent       Valid Percent  Cumulative Percent
            Yes                       50            4.2             38.5                38.5
 Valid      No                        80            6.7             61.5                 100
            Total                    130           10.9              100
 Missing    System                  1068           89.1
 Total                              1198            100




halid       No
            .-             I         1291          10.81            99.2)                100
            Total                    130           10.9              100
 Missing    System                  1068           89.1
 Total                              1198            100



                             Frequency      Percent       Valid Percent  Cumulative Percent
            Yes                       5             0.4              3.8                  3.8
 Valid      No                       125           10.4             96.2                 100
            Total                    130           10.9              100
 Missing    System                  1068           89.1
 Total                              1198            100




                                                         34

    Table 5.26 Did you applyfor credit in the last 3 years?
                 According to Income Level
[valid Percentages             IUr,to3MW      I Above3MW     I
        Yes                                 8              17

        Yes but it was rejected             3I              3
        No                                 891             80
Total                                     871)            328

    Table 5.27 What did you use credit for? According to
                        Income Level
                                      Income Levelof
                                        Respondent


        To buy a house
        Improve home

I       To buyappliance                    28              25

       ITo buy a car for home  I             I               I
I                                           1              12
        To pay debts                        7               2
        Education                           2               3
        Health                              1               2

        To buy merchandise                 33              26
        To buytools                         1               2
        To buyequipment                     1               0
        To buyvehicles of
        transport                           1               8
        To pay creditors                    2               3
 YoTotal Sample                             9              20


 Table 5.28 What did you use credit for?Accordingto being
                    Banked or Unbanked


 Valid Percentages              With Bank Without Bank
                                 Account          Account

        Buyor Renovate
        House                              11              65
        Purchase Goods
       llnvestment             I           221
        Health                 I           111              5
        Automobile                          01              5
        Others
 Total SamDle




                                                           35

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Section 6: Profile of the Unbanked (Income Levels, employment, education and well being inthe last 5
years)

                                          Table 6.1 Education
     I                               I                                              I           1

                                       With bank account     Without bank account      Total


              Unfinished elementary                     34                       133         167
             school                                 12.00%                    14.60%     13.90%

              Elementary school                         37                       192         229
                                                    13.00%                    21.OO%      19.10%
              Unfinished junior high                    50                       123         173
              school                                17.60%                    13.50%
     I       I                                                                            14.40%I
              Junior high school                        87                       280         367
                                                    30.60%                    30.60%     30.60%
              Unfinished senior high                    33                        73         106
              school                                11.60%                     8.00%
     I                                                                                     8.80%I
                                                        301                       701        1001




              iIIiterate                                 8                        35          43
                                                     2.80%                     3.80%       3.60%
                                                         i                                      4
              Not specified                          0.40%                                 0.10%

      Total                                            284                        914        1198
                                                   100.00%                   100.00%     100.00%


                          Table 6.2 How much income did you receive last month?
                                     I                                               I           I

                                       With bank account     Without bank account       Total




              More than 2 M.W. to 3




                     than 5 M.W. to 6




              More than 10 M.W.                          111                        61         17
                                                     4.10%1                    0.80%1       1.70%

              Not specified                              18                        17          35
                                                     6.70%                     2.40%        3.60%

      Total                                            270                        706         976
                                                   100.00%~                   100.00%~    100.00%



                                                             38

                                                             0.10%         0.10%

       Inactive                            14                  192           206
                                       4.90%                21.OO%        17.20%

       Other                                                      2            2
                                                             0.20%         0.20%

Total                                    284                   914          1198
                                     100.00%               100.00%       100.00%


                   Table 6.4 Home: Ownership
                                                                                I




                           With bank account  Without bank account    Total




                                 39

                              Table 6.6 Do you have television: pay per view?
I                                             I                                                I              1

                                                With bank account       Without bank account       Total


        Yes                                                        33                        48             81
                                                              11.60%                      5.30%          6.80%

        No                                                        251                        866          1117
                                                              88.40%                     94.70%         93.20%

Total                                                             284                        914          1198
                                                             100.00%                    100.00%       100.00%




                                                 With bank account      Without bank account       Total


        Yes                                                       143                        248           391
                                                              50.40%                     27.10%         32.60%

        No                                                        141                        666           807
                                                              49.60%                     72.90%         67.40%

Total                                                             284                        914          1198
                                                             100.00%                    100.00%        100.00%




                                                 With bank account      Without bank account       Total


        Yes                                                       121                        163            284
                                                              42.60%                     17.80%         23.70%

        No                                                        163                        751            914
                                                              57.40%                     82.20%         76.30%

 Total                                                            284                        914           1198
                                                             100.00%                     100.00%       100.00%




                                                 With bank account      Without bank account       Total


        Yes                                                        26                         46             72
                                                               9.20%                       5.00%         6.00%

        No                                                        258                        868           1126
                                                              90.80%                      95.00%        94.00%

 Total                                                            284                        914           1198
                                                             100.00%                     100.00%        100.00%


            Table 6.10 During the last 12 months, did you or your relatives receive rent payment?
                                              I                                                 I              I

                                                 With bank account      Without bank account       Total


        Yes                                                          5                         6             11
                                                                1.80%                      0.70%         0.90%

        No                                                        279                        908           1187
                                                              98.20%                      99.30%         99.10%

 Total                                                            284                        914           1198
                                                             100.00%                     100.00%        100.00%



                                                             40

    Table 6.11 During the last 12 months,did you or your relativesreceive medical insurance,life
                                  insuranceor robbery insurance?




                                    With bank account        Without bankaccount         Total




   Table 6.13 Duringthe last 12 months,did you or your relativesreceive alimonyor old-age pension
                                       and other payments?




    Table 6.14 Duringthe last 12 months, did you or your relativesreceive unemploymentor layoff
                                             payments?




    Table 6.15 Duringthe last 12 months,did you or your relativesreceivePROCAMPO payments?
I                                I                                                  I             I
                                    With bank account        Without bank account        Total


           Yes                                          2                          1              3
                                                   0.70%                      0.10%           0.30%

           No                                        282                        913            1195
                                                  99.30%                     99.90%         99.70%

Total                                                284                        914            1198
                                                 100.00%                    100.00%        100.00%


   Table 6.16 Duringthe last 12 months,did you or your relativesreceiveALIANZA POR EL CAMPO
                                            payments?
I                                I                                                  I             I
                                    With bank account        Without bankaccount

  ~




           No                                        284                        914            1198
                                                100.00%                     100.00%        100.00%

 Total                                               284                        914            1198
                                                100.00%                     100.00%        100.00%




                                                                           41

  Table 6.17 During the last 12 months, did you or your relativesreceiveinterestrate paymentsby

I                                    bank accounts or deposits?
                                  I                                                I               I
                                     With bank account       Without bankaccount




 Table 6.18 During the last 12 months, did you receiveremittancesfrom your relativeswho live in the
                                              country?




                                     With bank account       Without bankaccount        Total

                                                                                              ~




          Yes                                          15                        34              49
                                                    5.30%                     3.70%          4.10%

          No                                          269                       880           1149
                                                  94.70%                     96.30%        95.90%

 Total                                                284                       914           1198



                            Table 6.21 Why did they close or sell the shop?




                                                                             42

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   Table 6.27 Formal and Informal Employmentand Formal and Informal
                            Financial Products

        Financial Services            Type of Employment

                                                               Sample
No Bankina Services                II Formal   I   informal  I
                                         25.6%1         74.4%1      915
Tandas                                   30.9%          69.1%       178
Savings Clubs or Store Promotions        66.3%          33.7%        92
Cooperativeor Credit Union               a 3 . 3 ~ ~    16.7%         6
Savinas Account                          513%           48.7%       115
Checking Account                   I     50.9%1         49.1%1       55
Sample Size                                401  I         7971      1198




                                   46

Section7: PotentialBank Clients

Responses Broken Down According to Being Banked or Un-banked

              Table 7.1 What type of account did you try to open? (option 1)




              Check account




              Afore account


              Fixed investment


Total                                                                                     45
                                                  100.00%~                  100.00%~100.00%




                                       With bank account      Without bank account   Total




              Loan for education




                                     I            100.00%~                  1OO.OO%l100.00%~



                                                             47

BreakdownAccording to Response

              Table 7.1 What type of account did you try to open? (option 1)
I                                     I                                              I




               Investment account




                Fixed investment




        Table 7.2 What type of financial service would you like to receive?(option 1)




                                                               48

ANNEX 2 Analysis of FinancialSystem: Supply Tables




                        49

Table 1MarketShare and Assetsof Mexico's CommercialBanks




      SERFlNlSANTANDER         8.24
                                   ~

      BITAL
                               9.97   14.123 91.9
      SANTANDER MEXICAN0       8.30
                                                            0.21  405   4.6



      J.P. MORGAN(CHASE)       0.44
                                                            0.17  241   4.8

      DEUSTCHEBANK             0.23    798   9.8
      BANK OF AMERICA          0.60




Table 2 GeographicConcentrationof CommercialBankDepositsbyType
Balancesat the end of 2001
Sharebytvpeof deposit




Checking
accounts          100.0   100.0          7.9 7.1  5.9   3.3  39.0 0.0
Savings accounts  100.0   100.0          3.0 4.1  2.8   1.9  32.7 0.0

Term deposits
with fixed
withdrawal date   100.0   100.0          0.7 0.0  2.1   3.1   5.1  0.0
Term deposits     100.0   100.0          4.1 3.0  4.6   2.3  18.1 0.0
Term deposits
with paymentat
end of the period 100.0   100.0          5.6 4.7  7.5   2.4  25.0  0.0




                  100.0   100.0          0.9 0.1  14.3  0.9   9.4 0.0


                  100.0   100.0          9.0 7.1  8.5   3.0  43.4  0.0
Savings accounts  100.0   100.0          2.4 1.2  0.9   1.0  12.3  0.0
Term deposits     100.0    99.8          6.7 9.9  4.4   4.6  43.9  0.2




                                                       50

  Table 3 Distributionof Basic Financial ProductsinMexico City among BiggestBanks




aCcwnLq
bnrncheeand
P e m d            16,662,313   1,826,442  4,634,331   6,267,738       7,405     110,456I
**caytotat          4,901,907   1,325,292  1,403,137   3,242,338       1,407      46,822
BKAL                1,586,147      79,565    235,999     106,143         279       5,621
BBVA                  944,663     117,687    421,458     788,602         288      13,262
Banamex
(Ciibank)             882,211      77,043    315,570    1,930,159        289      13,673
Santander             364,687      17,187     46,526      33,283         124       2,507
Serfin



Scdiabank lnverlat    275,878     74,398      56,131      83,112          83       3,036
Banorte              218,299          847     47,964      34,152          94       1,380

Inbursa
Bancreser             171,262         828     18,638       7,788          90        1,799
                      74,388            0      2,911           0           5         515
Ixe                   35.448          104     10.250       2.683          19         546
                                                                                      _ _
sh%reoflola~
be*    (%)
)                       99.4        100.0        89.3       93.0        96.9         95.6




  Table 4 Bank Branches inMexico City
                         Branches       %of Total                Branches  X of Tots1
                                                  ABNWRO
    INTERNACDNAL                    280     20.59BANK                     1      0.07
                                                  AMERICAN
    BBVA-BANCOMER                   208     15.29 EXPRESS                 1      0.07



    -B.E.V.                                       BANCO DE
       _...                          125      BOS BOSTON
                                                  - _ __ .                1      0.07
                                                  BANKOF
    BANCRECER                         97     7.13nne~~c~                  1      0.07
                                                  BANK OF
    SANTANDER MEXICAN0                94     6.91TOKYO                    1      0.07


    SCOTIABANK                        65     4.78CHASE MANH               1      0.07

                                             3.316AffK
                                                  DRESDNER
    PROYEX                            45                                  1      0.07

                                                  FIRST CHICAGO
    BANORTE                           38     2.79BANK                     1      0.07

    BANPAIS                           32     2.351NDUSTRIAL               1      0.07


    AFIRME                             8     0.59INTERACCIONES            1      0.07




    INBURSA                            2     0.15REP.NAT.BANK             1      0.07




                                                                    51

Table5 GeographicDistributionof BankBranches



                                 2a74%      18       $5.290   516.255     1 . a

                      156        11.47%     17       $7,503   364478     2,311




Table 6 Restrictionsto OpeningaNoInterestCheckingAccount
Institution                      Banam' 3anca          Ban-       BBVA       Bital'
                                           Serfln'     Ssntander Benwmer*
                                                       Mexicano'

Nameof the Product               Cuentade Maxicuenta Tradicional Verdtil
                                 Cheques   Clhsica                ParHcularssTradicionel
1. Opening Deposit                $2,000.00       $1.oo $1,000.00 $1,000.00 $2,000.00




Income aercentile75th: $3.703
... -...- -..-.....- ...... -,..-        ves          no        ves
                                                                a- -       ves
                                                                           I--       ves
                                                                                     a--




Income mrcentile25 th: $1.547           no          no         no         no          no
Incomepercentile50th:$2,380             no          no         no         no          no
Income percentile75th: S3,703           no          no         no         no          no
IncomepercentileIO*        $11,619     ye9




                                                                     52

Table 7 Restrictions to Opening an Interest Checking Account
   Institution                     Banamex' Banca          Banco          BBVA         Bital'
                                               W i n '     Santander      Bancomf
                                                           Mexicam.
   Nameof the Product              Cuenta      Maxicuenta SuperCuenta     Maestra     Cuenta

                                   Opci6n
                                    Maestra    Efectiva                   ParticularesMaestra

   1. Opening Deposit                 $3,000.00       $1.oo          $1.OO  $2,500.00 $5,000.00




   remaininthe bank without
   oenaltv                            $3,043.13  $3.041.98       $1.066.12  $2.543.13 $3.041.21



   Incomepercentile50th:$2,380                          no            Yes          no        no
   .lnemnenereentile75th:.S3.703. ves
    .. -...- -.--. ....- .-... -,.
      -                       -             no
                                  .                    ves
                                                       I--            ves         ves      ves
                                                                      I --        I--      I --



   Income percentile25 th: $1,547           no          no             no          no        no
   Incomepercentile50th:$2,380              M)          no             no          no        no
   Income percentile75th:$3,703             no          no             no          no        no
   incomepercentile100th:$11,619                       Yes            yes         yes      yes

Table 8 A. Return on a Savings Account
Institution                      Banamex'       BancaSerfin' Banco         BBVA          Bitel*
                                                              Sentandw     BancormP
                                                              Mexicano'
Nameof the Product               lnvermatico    Maxicuenta    Super Cuenta Libret6n      Tanda
                                                Millonaria                               Bital

1. OpeningDeposit                   $1,000.00        $1.OO      $100.00       S750.00     S500.00
2. MonthlyMinimumBalance $loo0 butonly Nobelance             Nobalanceis      $750.00 Nobalance
                                 over $2000     =wifed but required                      required
                                 interestsare   over $3000
                                 paid           interestsare

3.Monthly managementfee               $7.19     midS9.58      Simplifiedfee    $34.85        SO.OO
                                                              includes
                                                             administration
                                                             chararr
                                                                  =--
4. Balancerequestedto remain                                   Nobalance                 Nobalance


income percentile25 th:
                                       ves
                                       . -            ves          ves          ver          VCII
lncomepercentile50th:                                 I--          I--          I --         ,--

$2,380
Income percentile75th:                 Yes            Ye=          Yes          Yes          Ye=




                                                                         53

Table 8 B Returnon a SavingsAccount

   institution                      Banamex*        BancaSerfin' Banco        BBVA          BitaP
                                                                  Santander   Bancame?'
                                                                  Mexicam*

   Nameof the Product               lnvermatico     Maxicuenta    Super Cuenta Libreth      Tanda
                                                    Millonaria                              Bital



    savingsaccount holderof          account inthis                            an eccount in
    $642                             bank as                                   this bankas
                                     minimum                                   minimum
                                     balance1s$1000                            balanceis
                                                                               $750
    Interest for the period, the                         so.00       S26.96                   $26.96
    average rate is 4.20% if
    conditions are filled
    _ _ _   . _
    Income  sffectof inftation over                     -$51.36      451.36                   -$51.36
    the average account (inflation
    of 2001:8%, annually)
    Final balance for account                          S475.64      S617.60                   S617.60
    holder after interest payment
    and inflation andfees
    discounted
    Lossof an average savings                          $166.36       $24.40                    $24.40
    account
    Is it worthy to have a savings                         No          No                       No
    account?



Table 9 Additional Chargesof ATM and Electronic Banking Operations

InstituHcn                      Banemex'      6anca Serlin'   Banco        BBVA-        Bit&*
                                                             Santander   Bancomer'
                                                             Mexican&

1. Withdrawals included         1 freefor       $10 free   Without cost   S10 free     Without
                               $1,000.00 of                                              cost
                                balance



in RED




7. Chargesfor using                43.7          31.05         31.05       34.5         31.OS
ATM's monthly
-(assumption- and 2
              4 withdrawals
  1 on RED          balance




Income Dercentile75th:              no            ves          ves          ves           ves
$3,703
Incomepercentile100th:
$11,619                            yes            yes          yes          yes           yes




                                                                       54

Table 10 Affordability of Bank Productsby Income Quartile
Stage 1. MinimumDepositis matched by income:yes or no
                          Checking      Checking        Checking       Savings Children's
                          Account with Account          Accountsin US Accounts Savings
                          Interest      ithout Interest Dollars'               Accounts



Incomepercentile25 th:
-.,- ..                        no               no            no         ves       ves
S i SA7

sq3m
Incomepercentile50th:          no             Yes             no         Y-        Yes

$3.703
Income percentile75th:
_-,--                          no             Yes             no         Yes       Yes


$11,619
lncamapercentile105th:         Yes            Yes             no         Y-        Yes




Incomepercentile25 th:
_.I-_.                         na              nn             .NA*.
                                                               ..        VPC
                                                                          I--      VPP
                                                                                   I--
$2,380
Incomepercentile50th:          no             Yes             NA'        Yes       Yes
Income percentile75th:
__,.
$3 703
     _-                        no             ves
                                               I--            NA*
                                                              ....       ves
                                                                          I--      vea
                                                                                   I--
$11,131B
Incomepercentile100th:         Yes            Yes             NA*        Yes       Yes



One percentof income           ves             no             no          no       no
percentile25th:$15.47

Onepercentof income            no              no             no          no       rto
percentile26th:$!23.80
One percentof Income           no              no             no          no       no
percentile75th:$37.03

Onepercentof Income            no              1K)            no          no       no




Table 11Comparison of Bank Product Affordability Mexico vs USA
Stage 1. Minimum Deposit isMexico
                            retched by income: yes or no
                                           US Checking             w   o    us          USsavings
                           Checking        MonMerestaccounF'       passbook passbook    Statement"
                           noninterest
                           Account


Incomepercentile25 th:            no
$1,547
                                  no                  Yes            ye*       Yes           ye*
%36cJ
Incomepercentile50th


$3,703
Income percentile75th:            no                  Yes            Yes       Yes           Yes

lncomepercentile100th:
$11,619                          ye s                 Yes            m         yes           Yes

Stage2. Does monthly charges exceed 1% of montlyincome: yes or no


One percentof income             yes                   no            ves        no           no
percentile25th: $15.47



One percentof Income             yes                   no            ves       ves           no
percentile75th: $37.03

One percentof Income             yes                  no             Yes       Yes           no
percentile100th:$116.19
I




                                                                     55

Table 12 CommercialBanksFocusonHighEndMarket


                      867 Sank Products from 7 Commercial Banks




                                                          71% Hiah End
                                                                  "



                                                               '..-.




  11.6% LOW


            C High End    C Low End           Other        Unclasifed

            Source: EnterprisingSolutionsSurvey Conductedfor The WorldBank




                                                  56

ANNEX 3- A RAPIDREVIEW OF LITERATURE




                 57

A.      ACCESS ISSUES AS VIEWED INRECENT PUBLICATIONS INTHE USA

1.      During the period from 1970- 1990, U.S. government policy focused on increasing access to bank
loans -particularly mortgage and business credits- as a key to asset building and upward mobility in low-
income and minority neighborhoods. The passage of the Community Reinvestment Act in 1977 (hereafter
"CRA") and other measures (including the creation of the Federal Neighborhood Reinvestment Agency)
aimed to end the practice of "redlining'" and stimulatebanks to lendto neighborhoods. While the impact of
the legislation has been felt strongest during the early 1990's with the blossoming of certain Community
DevelopmentBanks and of a marketintrading"CRA credits", it has also ledto a re-examiningof the issueof
access to financial services,ingeneral alongtwo lines of thinking.

2.      The first involves a re-evaluation of the CRA and other like policies and programs in light of thirty
years of experience.The secondconcerns families or individuals (referredto as the "unbanked") who remain
outside the mainstreambankingsystem, despite the growthinbankingpresence, activities and services inlow
incomeandminorityneighborhoodsfollowingCRA.

The Cost of Investing in Low Income and Minority Neighborhoods

3.      Recent literatureon the CRA andother policiesto encourage investmentsinlow income and minority
communities has emphasized the impact on banks which have invested in low income and minority
communities for CRA credits and on the communities themselves. In general terms, participating banks
appear to have realized positive returns overall, in line with or superior to their other investments2.
Communities also have benefited from stronger community organizations and from increased social
infrastructure, business investments and home ownership and home improvements. The actual poverty
impact,however, remainsunclear as only a small percentage of residents can be consideredto have benefited
from business loans, and only a handful of the original businesses financed under the various programs
developedto stimulate community investmentshave survivedeven though some have become very lucrative
(Bates 2001). Similarlylendingfor home mortgages andimprovementaffectedonly a portionof residentsand
recent studies suggest that while houseprices generallyappreciate over inflationinthe longrunin middleand
upper middle income neighborhoods,they actually decline in low income neighborhoods (Carr, 2002). The
U.S. FederalReserve Bank held a symposiumon the subject of CRA during 2000 and opened a website to
discussions which signaledthe followingpoints:

4.      Government policies in support of community development lending, as typified by the CRA3,have
had an important influence on bank lending patterns in support of increasedlending to poor and minority
groups. In parallel, community organizations appear to have been strengthened by the new power they can
exert over banks to force compliance with CRA. By demonstrating or even laying claim to discriminatory
practices, Community activists do not appear to have made any similar gains from CRA (Bates, Holyoke
2000).




 Refusingto consider loanrequestsfrom personsor businesseswithin anpre-designatedarea, characterizedby low-incomesand/or
highpresenceof minoritygroups.


 For a full discussionof CRA imputedcosts and benefits for banks see Survey of the Performanceand Profitabilityof CRA-Related
Lending at http://www,federalreserve.gov/BoardDocs/Surveys/CRAloansurvey
 For a full history of CRA see Litanet. al. 2000, Haag, 2000, Squires, 1992
                                                               58

                           Profitabilityof CommunityDevelopmentLending
                                        (percent of institutions)



                                                                 Marginally
                                                                 Unprofitable
                                                                HBreak Even

                                                                0MarginallyProfitable

                                                                0Unprofitable

                                                                HProfitable




                           Profitabilityof Community DevelopmentLending
                                  (percentageof dollars originated)



                                                                   Unprofitable

                                                                 HProfitable


                                                                 0Break Even


                                                                 0Marginally




                                        Chart 1Profitabilityof CRA Lending
5.      The CRA requirements appear to have been bolstered following supervision of banks' lending
activities, publication of profitability ratings, and the connecting of CRA ratings linked to banks'
susceptibility to litigation for discriminatory practice. With the rise in the importance of acquisitions and
mergers, banks became more aware of such ratings and more eager to comply with CRA requirements
(Holyoke, 2001). Profit, profitability, performance for small business mortgage, home improvement, and
community development lendinghas been measured and found to be virtually the same as nonCRA lending.
Chart 1shows figures fromthe U S FederalReserveBank recentassessment of CRA effect onbanks.

6.      Banks report that in addition to profitability and performance on par with other lending operations,
investments in community development projects have led to other benefits in terms of cross lending
(identificationof clients for business and mortgage lending and improved public image). They also report
some additionalcosts interms of security and logistical expenses (Caskey 1994, andHolyoke 2001).

7.      Besides the CRA which focused on banks' geographic lending patterns, other government policies
over the past thirty years have beendesigned to encourage capital flows to minority-ownedbusinesses and to
smallbusinesses from specific "empowerment zones", identifiedas hardcore, low incomecommunities. The
Community DevelopmentFinancial Institution(CDFI) program was built on the experience of the Minority
Enterprise Small Business InvestmentCompany (MESBIC) program, started in 1969 (Bates, 2001). Under

                                                             59

these programs government offers matching funds to companies that invest in businesses meeting established
criteria. Venture capital for community development (CDVC) has also been encouraged, but i s limited as
venture capital tends to flourish in certain states, and only a few of those have sponsored companies for
special small businesses. Some 30 states offer grant funding and free technical assistance along with venture
capital. But the trend toward larger funds and larger deals makes it difficult for those which focus on small
investments, small businesses and low-interest loans.

8.       While the small business and minority business investment programs have been linked to economic
development, it has proved difficult to demonstrate an impact on poverty alleviation (Brown and Churchill,
2000). Special funding for minority owned businesses tends to favor upper income persons and successful
investments have generally been in technology fields or in capital intensiveAow employment ratio service
industry (cleaners, taxi companies). In what may be a sign of changing times and shifts away from
manufacturing, it i s noted that the businesses supported by CDFIs and MESBICs or b y focus on
empowerment zones tend not to generate significant employment among low income populations (Rubin
2001, and Bates 2001).

9.       The CRA and its fellow programs have led to an impressive increase in banking activities in low-
income urban neighborhoods. Although the initial focus has been on investments, specifically on small
business loans and mortgage lending, bankers themselves have built new programs based on other financial
products for low income families; savings, checking, ATM accounts as well as special lending programs for
education, women, consumer loans etc4.Even as credit programs for low income neighborhoods have been on
the increase, other financial needs have come into play. As Alan Greenspan commented at a conference on
community development banking, "Credit alone i s not the answer5"

The "Un-banked" are on the Increase

10.      Recent publications in the United States focus on increasing evidence that a growing percentage of the
population i s "un-banked." While the census data does not inquire about household financial services, several
serious surveys and independent studies confirm a fall in the percentage of households with deposit accounts
over the past thirty years, and link the percentage of "un-banked" to macro-economic buoyancy. At the same
time, research shows that households and individuals with bank accounts are concentrated among higher
income groups, suggesting that the increase in the percentage of "un-banked" i s linked to a growing
percentage of hardcore urban poor.

 11.     The percentage of families with bank accounts fell from 90.5% in 1977 to 86.5 % in 1989 for families
earning under $84,000 - but the difference is much more marked for families earning under $12,000 (from
70.3% to 59.2%) (Caskey and Peterson 1993). It appears, however, that the use of formal sector financial
services grew with economic expansion during the 1990's. The percentage of families without savings
accounts dropped according to Survey of Consumer Finances, from 15% in 1989 down to 13% in 1992.
Duringthe same periodthe families without checking accounts also dropped from 19% to about 13% in 1995
(Kennickell, Starr and Sundtn 1996). Despite these reductions, authors still express concern that the
percentage of "un-banked" still remains higher than in pre-1975 levels.




  Interview,Glenda Snowden, CEO FirstCommunityBankof Boston, 1999
  Alan Greenspan,FederalReserve Conference on Community Development,March 1999
                                                        60

Links Between Access to Financial Services and the Urban Poor

12.    Researchers agree that an increase in the percentage of unbanked indicates a disproportionate impact
on low income and certain minority families. For example, Hispanics make up 54% of the New York City and
Los Angeles samples of un-banked, while they compose only 9% of the overall population. The high presence
of "Latinos" among the "un-banked" has led some to speculate that the increase in the percentage of un-
banked may stem from the waves of migrations from Latin America between 1975 and 1990 (Dunham, 2001,
and Rhine et.al, 2001).

13.     In general researchers agree that the un-banked are disproportionately low-income, with
disproportionate representation of minority groups, in particular Afro-Americans and Hispanic migrants.
Minority households make up one third of the un-banked population samples, compared to 13% of US
households overall.   (Dunham 2001, Caskey 1992, Caskey and Peterson 1993, and Stegman 1999) The "un-
banked" also tend to come from households with less than $30,000 annual income, living in neighborhoods
characterized by low-income, minority groups and immigrant populations (LMI),with an unemployment rate
about four times that of the "banked" households. "Un-banked" households also include a higher percentage
of minority female heads, younger heads, unmarried, less educated and non-homeowners, as compared to
bankedhouseholds (Rhineet. Al, 2001).

14.     The phenomenon of "un-banked" also appears to be more marked in mega-cities. Based on surveys
carried out in 2001 in New York City and Los Angeles, the Office of Comptroller of the Currency has
estimated that 42% of individuals in the first city and 32% of those in the later are "un-banked" (Dunham
2001) versus the 13% tallied nation-wide by the Consumer Finance Survey two years earlier.

The Cost of Being "Un-banked": the savings deficit, the transactiongames andpredatory lenders

15.     Both researchers and policy makers express concern over the costs which the "un-banked" pay for
financial services, and over attendant problems with asset building. They hypothesize a link between access to
financial services and upward economic mobility.       U.S. Senator Joseph Lieberman stated in support of
legislation to promote greater access to banking services, [Use an Economist rather than (or as well as) a
policy maker to add more technical weight to argument?]

           "To be un-banked is to be under an economic disadvantage. It means that many people have to
            rely onfringe banking services, such as check-cashing outlets with highfees. But what is worse is
            the savings deficit that it createsfor many working-class, and minority, and young citizens, who
           have a much harder time acquiring and building assets. Thesefamilies and individuals are missing
           out on a critical component of economic opportunity. After all, building a nest egg is difficult to
           do ifyou do not have a nest."

16.     The difficulties of managing to save without access to banking services, and furthermore the greater
capacity for financial savings experienced by households with bank accounts even among low-income,
minority and immigrant households are both widely documented. (Stegman 1999, Carr and Scheutz 2001,
Skricki and FernBndez 2001, Rhine et.al 2000, Green and Lichter 1996) The "savings deficit" noted among
low-income households refers to the negative interest rates which characterize "cookie jar" savers. Carr and
Scheutz project the savings deficit in the table below.




                                                       61

Table 1The Value of Saving $3,0006


Year        Shoebox                                   S&P500 IndexNote          Microsoft Stock
                             Treasury Note
1989        $3000           $3000                     $3000                     $3000
1999        $3000*          $5,072*                   $9,180*                   $211,360*


17.      Carr and Kolluri note also that recent research supported by the Fannie Mae Foundation tends to belie
a formerly widely-held view that real estate (housing) can be a form of savings to hedge against inflation. In
fact the latest findings suggest that housing prices tend to rise above inflation rates inhighand middle income
neighborhoods, but do not keep up with inflation in lower income neighborhoods, further underlining the
importance of financial savings instruments for families from low income communities [Is this repetition with
first page endof thirdparagraph?].

18.      In the United States where financial services form a regular part of the household economy, research
indicates that the "un-banked" are spending more on financial services than if they were banked (Dunham,
2001). The "un-banked" must rely on a variety of unregulated service providers, dubbed "fringe banking"
(Caskey, 1997, and Stegman 1999). It includes "cash-and carry" methods, check-cashing outlets (CCO's),
"pay-day lenders" and pawnshops. Such institutions charge much higher rates than mainstream financial
institutions, but also run greater risks and higher costs per transaction. At the same time, they tend to operate
in dispersed neighborhoods where the reduced competition and lack of regulation allows prices to rise.
Studies of fringe banking indicate that "un-banked" individuals are willing to pay high costs for financial
services. Certain authors point to the illegal practices visited on "un-banked" individuals who turn to
"predatory lenders" (Carr, Sheutz, 2001, and Caskey, 1992).

`%ringe Banking"

19.      The volume of check-cashing, service payments and money transfers required by the "un-banked" has
led to the development of a sizeable "check-cashing industry" in the United States (currency exchanges) with
a cash flow estimated at US$55 billion in 2000, frequently underwritten by commercial banks and short term
loan companies. Currency exchanges or CCO's (`check cashing outlets') are credited with providing
complementary service including cashing government and personal checks, selling money orders and wire
transfers, making bill payments, selling public transportation fares, etc. The costs charged for these services
are high, particularly with respect to the clientele's means. While commercial banks could offer the same
services at lower costs, they may be getting higher returns b y investing in CCO's. (Dunham, 2001, Caskey,
1995; Rhine et. al., 2000, New York State Banking Departments, 1996)

20.      The impressive growth of fringe banking has led to the conclusion that the "un-banked" indeed need
extensive financial services; savings, check cashing, transfers, and payments as well as credit. Furthermore,
the "un-banked" are willing to pay for such services at rates higher than those charged by most banks.
Researchers who have gone on to ask why un-banked individuals opt out of the formal bankingsystems report
that the most frequent reason given i s "do not write enough checks to make it worthwhile." Interestingly, the
percentage of persons who give this answer has been declining steadily over the past decade, while the
percentage of persons answering "do not like dealing with banks" has increased by 50% to become the
second most frequent response at the moment (Caskey 1992, and Kennickell et. al. 1996). Besides the
explanations offered in surveys, it i s likely that "un-banked" households lack full information about banking
services, a condition referred to as "financial illiteracy" which arises in policy papers and recommendations


  Taken from Carr and Scheutz, "Financial Services in Distressed Communities:Framingthe Issue, FindingSolutions

                                                             62

for remedial actions (Skricki and Fernfindez 2001). A noticeable 8.2% of the Consumer Household Finance
Survey reported their reasons for not usingbanks to be "cannot manage or balance a checking account." This
percentage may be low, but it has doubled in the past ten years, along with the number of un-banked
households.

21.     The reluctance of "un-banked" persons to use banks for financial service needs, may also result from
limited presence of banks in LMI neighborhoods, which can also lead to "financial illiteracy" and to
misconceptions about dealing with banks, or the transactions neededto make such dealings worthwhile. There
i s strong evidence that banks tend to locate near centers of business activity and their presence i s
disproportionately l o w in census tracts with high percentages of Afro-American households. Somewhat
weaker evidence suggests the same holds true for census tracts with Hispanic residents (Caskey 1992).

Programs and Policies to Reach the "Unbanked"

22.     Some government programs to remedy the situation of the un-banked have been enacted recently,
while others remain in the policy formulation stage. At the same time, experts have noted that certain banks
have begun experiments on their own to reach the low income and "un-banked" population.

    0   Certain states have recently enacted legislation requiringbanks to offer "lifeline accounts", or savings
        and checking programs considered affordable to low income families. Some reports claim that such
        legislation i s unnecessary insofar as the banks in "lifeline" states already have "affordable" accounts
        programs, others suggest that merely makingsuch programs available does not guarantee any benefits
        to low income or un-banked populations when the promotion may not be carried out in their
        communities. (Doyle et al, 1999).

    0   In further support of encouraging "un-banked" and low income families to open bank accounts - in
        particular for savings, the Federal government has recently enacted programs to pay federal employees
        through "electronic funds transfer" (EFT), providing employees with starter bank accounts, and to
        help first time savers with the Individual Development Accounts (IDA) programthrough which banks
        match the savings of IDA clients and deduct the costs from corporate tax payments. As Joseph
        Lieberman said in support of IDA and EFT legislation,

             ", ..Savings  is empowerment. It allowsfamilies to live without public aid and provides them with
            a ladder into the middle class. It can actually change afamily's economic station and set a better
            coursefor future generations. "


    0   Concerned that the opportunities and matched savings may not provide incentive enough to create
        long term banking habits, several experts have proposed programs to combat "financial illiteracy" to
        train first time savers inbasic concepts of banking.

    0   The low presence of banks in low-income and minority neighborhoods may contribute to the circle of
        poverty, or it may be a reaction to it. Modern methods of electronic banking and experiments with
        "supermarket banking" open encouraging new possibilities for banks to enter areas they formerly
        would eschew. (Radecki et al 1996, Caskey 1992). T o encourage banks to become more active in
        "underserved" areas the US government has considered the creation of "banking development
        districts." Under such districts banks and local governments can file jointly to establish areas where
        local government can offer property tax breaks and guarantees o f government deposits to banks that
        set up new branches inunderserved areas. (Doyle, Lbpez, Saidenberg et. al. 1998)



                                                       63

B.       ACCESS TO FINANCIAL SERVICES AS VIEWED FROMDEVELOPING COUNTRIES

23.      Research and publications on access to financial services in developing countries i s largely focused on
lending to small and micro enterprises - a practice referred to as "microfinance." This body of literature has
been complemented recently by additional work on savings issues and on non-business lending for the poor.
The primary lessons, nonetheless, derive from the experience of the microfinance movement.

24.      Early experiences with credit programs for small businesses relied on government and donor funding
for subsidized loans. A long history of largely disappointing rural credit programs provided lessons in the
dangers of such practices. Serious loan-recovery problems taint portfolios and rendered such programs
unsustainable. Higher income rather than low income farmers tended to be net beneficiaries of low-interest
loans, and low interest discouraged savings deposits and left financial institutions floundering. The same
programs offered low interest savings accounts and were criticized for preserving paternal relationships while
discouraging lenders from emphasizing creditworthiness and from seeking new sources of funds. Much
literature attests to the failure of the policies of subsidizing credits and has lead, in some cases, to fiscal crises
at national levels. (Mansell Carstens 1995, Von Pischke 1983, Adams et. al. 1984, Adams and Fitchett 1992,
Seibel 1994).

25.      Experiences of small credit programming in Colombia registered additional undesirable side effects by
restricting flows of credit to new crops and new technologies, concentrating loans in large sums to large
farmers, and wasting human resources. (Adams, Graham and Von Pischke 1984).

26.      InMexico, the government's record with direct lines of credit to small businesses and formal financial
services to the poor has not been successful. (Mansell Carstens 1995). Lending in rural areas tends to go
through three channels: commercial banks, a special class of government-promoted and supported lending
institutions, the CFNIs, and traditional money lenders. The CFNIs are chartered non-bank intermediaries
regulated by law to provide small loans, one ninth, on average, the size of commercial bank loans. The
money-lenders make the smallest loans. A World Bank sector paper noted that repayment problems are more
severe problems for formal sector lenders than for their informal colleagues. Even so it recommends
increasing the participation of private commercial banks rather than promoting other organizational forms.
(Chavez and Sanchez, 1995). At the same time, others argued that informal sector financial agents and
mechanisms may satisfy the needs of the poor - in many cases at a lower cost than the formal sector
institutions. By avoiding regulatory and logistical costs and b y lending only to known persons, informal
agents reduce transaction costs. (Mansell Carstens 1995)

 TheMicrofinance Revolution

27.      After the 1970s independent microenterprise finance organizations - or microfinance institutions-
began to emerge on a more sustainable basisand began proliferating. With the advent of structural adjustment
and financial liberalization of the 1980s, traditional commercial banks and finance companies began to look
for ways to enter the microenterprise market by offering services to what appeared to be high-risk and high
cost microenterprises and MFIs. This was in part because microenterprise, in recognizing the need for
Institutional Financial Self-sufficiency (IFS), sought greater efficiency in operations to increase retained
earnings and pursued alliances with private sources of funding (Gibbons and Meehan, 2000.) As successful
MFIs followed efficient business models they also showed a marked trend towards the formal sector, driven
in large part by the need to access more plentiful and reliable sources of funds. (Baydas et. Al. 1997, Rhyne
and Rotblatt, 1994). This movement toward large scale profitable provision of microfinance services to
economically active poor by sustainable finance institutions has since been dubbed the "microfinance
revolution" (Robinson, 2001). This is not to say that MFIs have had an easy time. MFIs must charge interest
rates that can be considerably higher than standard commercial finance institutions because their operating

                                                          64

costs are several times higher (Robinson, 2001). Despite their need to establish reliable sources of funding, in
many countries, micro finance institutions are either prohibited by law from offering savings accounts or are
limited by highamounts of minimumcapital required to take deposits,(Gibbons, 2001).

28.     As MFIs move into the formal sector, so also have commercial banks in Latin America been moving
into micro-enterprise lending and lending for consumer loans. 29% of funding for micro-enterprises in Latin
America now comes from commercial banks in direct contrast to ten years ago when virtually no micro
enterprises were reached by regulated entities (Christen, 2000).               Before the 1980's brought a wave of
deregulation and competition, the formal sector had generally been "self-deterred" from financing informal
enterprises (Robinson, 2001).

29.     The most frequently cited case of mainstreaming of microfinance institutions has taken place in
Bolivia during the past decade. Experts attribute the speed and depth of the "revolution" to three principle
factors: local cultural tradition for honoring obligations, the national economic policies which in this case
deregulated banking and freed the interest rates, and the MFIs themselves which attracted dedicated and
technically serious and competent persons (Rhyne, 2000).

30.     During the same time frame, four different paths have been noted in cases of microfinance service
expansion on a commercial basis in urban areas. These include commercial banks' "downscalini", licensing
of non-bank financial intermediaries (including transformed microcredit NGOs and specially licensed
microfinance institutions), start-up commercial microfinance institutions, and alliances between commercial
banks and NBFIs (through agent or on-lending relationships). These routes to commercialization differ in
terms of their scope, outreach, and sustainability but all are noted to share the positive virtues of more
efficient and broader outreach (Vickers and Goldberg, 2002, Christen et al, 2001, Poyo and Young, 1999,
Valenzuela, 2001, Microbanking Bulletin No. 6, 2001).                 In addition the increased competition in some
microfinance markets has led to enhanced products since the MFIs seek to match client preferences associated
with loan products.      *  Clients seek good service quality and loan terms that fit their own situations (Rhyne,
2001). Good service quality includes speed of loan disbursement, convenient locations, simple processes, and
a welcoming atmosphere (Rhyne, 2001, Otero, 1986.) Evidence i s mixed on whether competition i s driving
down the price of microloans, as leading institutions may craft formulas that appear more attractive to clients.
Loan sizes may also be used to lure clients away from competitors. Finally, research has long recognized the
client preference for individual loans when given a choice, and increased competition results in microfinance
institutions shiftingtheir focus towards individual loans (Churchill, 1999).'

 31.     Among new products MFIs and commercial banks also are finding that non-business loans to low-
income individuals and households can be a profitable business. Consumer lending by MFIs in Latin America
i s currently showing more dynamic growth than microenterprise credit (Christen, 2000). Non-business loans
 are particularly important for low-income households and the poor who are particularly vulnerable to
 "economic stressors" (Sebstad and Cohen, 2000, Westley, 2002) [Peru MiCasa Program?]. In her review of
 successful MFIs Elizabeth Rhyne argues that "The key to successful lending was not how clients used the
 money but the fact that the loan was based on the client's existing ability (and willingness) to repay.""

 32.     Another line of business used by low income households involves remittances from the US and within
 developing countries. Although an estimated 30% of funds come from abroad in the form of cash in the mail,
 or carried by friends, 25% are sent through the money-wiring companies, 21% b y bank to bank electronic
 transfers and 19% by money orders and checks through the mail. The remaining 5% use other mechanisms
 '*Reachingto  lower income clients
   Rhyne,Elizabeth,"Microfinance Institutionsin CompetitiveConditions". October 2001.
   Churchill, CraigF. "Client -Focused Lending:The Art of Individual Lending. Calmeadow: Toronto: 1999.
 loRhyne, Elizabeth,"Microfinance Institutionsin CompetitiveConditions". October 2001.
                                                              65

 (Lopez, et. al. 2000.) The MFIs have yet to include these services in their menus. In several Central
 American countries remittances amount to 10to 12percent of GDP.

 Popular Savings

 33.      The literature review identified considerable research and publications on "popular" or informal
 savings mechanisms as well as on the capacity and needs of the poor to save, but found little on experiences
 with "micro-savings" institutions. At the least, there i s nothing to match the microfinance revolution for
 savings and other products.

 34.      The focus on credit programs to the exclusion of savings for the poor has its critics, just as popular
 savings programs have their proponents.

           "Above all the financial policies which ran through the seventies and into the early 1980's did not
          take into account that the poor (or whatever other target group) do not necessarily need more credit.
          It must not beforgotten that credits lead to debt and subsidized credits create incentives to greater
          indebtedness...in spite of the poverty in which they live, [the poor] have a greater need for savings
          services [thanfor credit.]" (Mansell Carstens, 1995, p.11)

 35.      As the expert on popular savings, Stuart Rutherford has argued that even the very poor save somehow
 and has also pointed out that savings and credit may substitute for one another. Demand for financial savings
 indeveloping countries i s large, and largely unmet.Saving is more crucial for microfinance clients than credit
 (Robinson, 2000). The argument that basic savings and credit products help with risk protection, and thus
 overlap with insurance has ledto the argument that for many clients it i s better to save than to borrow. While
 adding abasic savings product to the MFIs menucould provide abalanced set of financial services that clients
 can tailor to their own situations, experiences to date tendto be reported anecdotally. (Rhyne, 2001, Churchill,
 1999).

 36.       Savings capacity has been reviewed in both Colombia and Mexico from a macro point of view. While
 aggregate savings are considered low in Colombia and are of concern to government, the aggregate savings
 rate i s reported as high but fluctuating in Mexico as it tends to rise and fall with GDP. Furthermore, although
 total savings in Mexico are high they are also mainly concentrated among wealthier and better-educated
 families, meaning that the poor are less prepared for economic shocks. In fact, a considerable portion of low
 income families actually register negative savings since only a minority of households belong to the category
 of better-educated. Policies aimed at promoting savings should therefore consider the different sectors of the
 population, and should consider education. (Attanasio and Szekely 1998) The ROSCAs, informal "rotating
 savings and credit associations" popularly known as "tandas", allow people to contribute a fixed sum to a
 commonly held pool and to draw in rotation. Insofar as these informal savings plans have no safeguard
 against inflation, they would also qualify as negative savings. (Chivez and Sinchez, 1995).

 C. ACCESS TO FINANCIALSERVICESAND POVERTY REDUCTION

 37.       The links between loans to small businesses and reduction of income inequality or poverty are an
 important but undemonstrated proposition, at this point. The fact that Latin America's financial systems are
 relatively shallow ($1 GDP) [meaning in broad terms the low ratio of private credit to GDP] and that such
Isystems are associated with greater inequality, has led to the argument that greater lending to smaller firms
 would reduce such inequality (Westley, 2002). This of course depends on the supposition that smaller firms
 create employment for low income persons, something which has not always proved the case (Servon, 1999.)

 38.       Financial services offered to individuals may also prove to have direct links to asset building and to
 poverty reduction. The argument has been made that access to liquid savings programs can allow households

                                                          66

to meet emergency needs and to avoid erosion of income and assets, while also facilitating entry into higher-
risk and higher return lines of business (Westley, 2002.) Evidence from MFIs and low-income credit
programs also find that households increase their income even with non-business loans. Expenditure on
health, education, housing and technologies can lead to more productive individuals (Sebsdtad and Cohen
2000, Westley 2002.)

39.     A series of empirical studies at the World Bank and elsewhere have demonstrated the positive
correlation between financial system depth and soundness and economic growth". The links between
distribution or access and growth or poverty reduction are less well researched. A recently published IDB
study suggests that improving the access of micro-enterprises to financial services could have an important
positive impact on a country's income distribution. (Westley, 2002.) An IMF working paper which surveys
the literature on financial intermediation and poverty reduction concludes that development of the financial
sector contributes to economic growth and thereby to poverty alleviation (Holden and Prokopenko, 2001). It
also makes the point that savings and financial intermediation must be included in programs aiming to
promote financial services for the poor, citing one author as saying "it is, of course, not credit that levers the
poor out of poverty, but their ability to save from income generated from the use made of credit." (Buckley,
1997).

40.      Inconclusion, the literature linksthe broad distribution of financial services to equity issues, as well as
to poverty reduction and economic development. The US experience offers some possible programs and
policies for stimulating financial institutions to offer more affordable products and to move into low income
communities. Thus far experience in the ThirdWorld and in Latin America suggests that micro-financial
institutions and "popular" forms of dealing with financial needs offer a point of entry and could perhaps be
up-scaled to meet demand. On the other hand, lessons from the United States indicate that given incentives
commercial banks can be induced to move into the low income market and that, once there, they will broaden
services on their own. Literature from both countries refers to problems of "financial illiteracy" as a barrier to
broadening access to the underserved.




 `IThis section is basedon the Concept Paper for the Initiative "Brazil: Access to Financial Services" whose primary author is Anjali
Kumar
                                                                 67

ANNEX 4 Bibliography




        68

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                                                    69

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Churchill, Craig F.1999. "Client -Focused Lending: The Art of Individual Lending," Calmeadow

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2001




                                                   72

ANNEX 5 Use of Financial Services in5 Mexico Cities (BIMSA Survey)




                                  73

                                                          ICrkditoHipotecario AMCM 1999-2001I
                                                                              1999 2000 2001
                                                                              100% 100% 100%
                                                           Sexo
                                                           Hombre             71%  64%  17%
                                                           Mujer              29%  36%  23%
                                                                              100% 100% 100%




  CrkditoHipotecario      0%      0%       0%
  TIP0DESEGURO
  Vida                    11%     12%      10%
  Accidentes


  Medico                 21%               5%
  Escolar

  IMSS                            26%      32%
  MedicoPEMEX                     3%       4%
  Mexico Issst                    3%       4%
  Otros                           0%       0%




Penetraci6n de Servicios Financieros en el AMCM
                       I
                       I  1999     2000   I 2001
                         100%   II100%    I 100%




                                                    74

 Nivel SocioEconomico




                                                Superiores
                                                NoEstudios      I   13%      I  0%     I       1%

I Nivelde Estudios    1    1    1    1
  EstudiosBBsicos                                        Inversih a Plazofijo AMCM 19992001
                                                                 I   1999    I  2000   I   2001 .~
  EstudiosMedios                                                     .___~..                  ~


                                                Sex0                1006        100%       100%
                                                Hombre               58%        56%           60%
  No Estudios                                   Mujer                42%        44%           40%
                                                Grupo de Edad       100%        100%       100%
                                                13a 18                1%         1%            0%




                                                Superiores
                                                No Estudios      I    10%     1  1%     I      0%

                                          75

delHogar
Estudiante         13%    12%    12%
                   100%   100%   100%
Nivel de Estudios
EstudiosBBsicos
EstudiosMedios
Estudios

NoEstudios




                                         76

ANNEX 6 SURVEY QUESTIONNAIRE
    (INEGWNAMSURVEY)




             77

            CAPITULO 1. VIVIENDA Y EQUIPAMIENTO DEL HOGAR (informante jefe del hogar)
                                                                                  -




                                                    .... ................
                                                                . ..
                                                          ...



             32 Pick up3




    - S I      I
    - No       2   Pase a Capttulo5




05 Culdados de la sslud(atenclon prim&idaibuldorla
   dencion hosptalana, medicamentor,seguro medico1




09 Education(Inscnpcion,colegmtur< ai%culos fewlclos
   cducatys)
IO A ~ ~ I C U ~ ?
             ele&odomesticos    . -..
                                    . *  .I     -.- ..




                                                                             78

ICAPITULOfACCESO A SERVlClOS (informante - jefe del hogar)
                                                              1                          I 112
                                                              Cud es el principal medio      Cua
                                                              le transporte que utilizan   0;
                                                              IS miembrosde este




                                                                                        1
                                                                                        2
                                                                                        3
                                                                                        4
                                                                                        5
                                                                                        6
                                                                                        7
                                                                     espeofiquue         ,

                                                                                                    MINU




                                                                 79

 GAPITULO #. REMESAS (informante - jefe del hogar)




  15 LC6mo recibe la mayoriade estas remesi
                                 I
'-Se IO
  -- Se   entregan personalmenteen efectivo
    Se lo entregan en cheque
       lotransfieren por agencia de remesas
  - Depbsito en US$ a su cuenta extranjera
j -  Transferenciaa cuenta bancaria local
  - Otro,

                                          I




                                            80

                  NOTEELINTENTOMASRECIEN




                    marc0 5 P*SB B 44 55




I

     2 - S B
     '      I




            81