Building a Secure and Inclusive Global Financial Ecosystem

08 Sep 2017

The 2017 Brookings Financial and Digital Inclusion Project (FDIP) report evaluates access to and usage of affordable financial services by underserved people across 26 geographically, politically, and economically diverse countries. The report assesses these countries’ financial inclusion ecosystems based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial services.  The report further examines key developments in the global financial inclusion landscape, highlights selected financial inclusion initiatives within the 26 FDIP countries over the previous year, and provides targeted recommendations aimed at advancing financial inclusion.

Mexico illustrates global drive toward advancing financial inclusion

21 Aug 2016

Editor’s Note:

On August 4, the Brookings Financial and Digital Inclusion Project (FDIP) team launched the findings of the second annual FDIP report. The report highlights developments within the financial inclusion ecosystems of 26 diverse countries from spring 2015 through spring 2016. In this post, the FDIP team explores a number of advances within the financial inclusion landscape of one of its focus countries, Mexico, since the end of the data collection period for the 2016 FDIP Report.

The global financial inclusion landscape is rapidly evolving, as evidenced by robust progress toward strengthening the digital and financial ecosystems among the 26 geographically, economically, and politically diverse countries featured in the 2016 FDIP Report. Indeed, a number of countries have already implemented new financial inclusion initiatives since the end of the data collection period for the second annual FDIP report in late May 2016.

One of these countries is Mexico, which earned an overall score of 74 percent on the FDIP scorecard. In an effort to illustrate the kinds of financial inclusion developments emerging around the world, the FDIP team situates recent advances in and opportunities for Mexico’s digital and financial ecosystems within the context of the four FDIP scorecard dimensions: country commitment, mobile capacity, regulatory environment, and the adoption of traditional and digital financial services.

For more information on Mexico’s financial inclusion environment, as well as descriptions of the financial inclusion ecosystems of the other FDIP countries, read the detailed summaries featured the 2015 FDIP Report and the 2016 FDIP Report.


Mexico received a country commitment score of 94 percent for the 2016 FDIP scorecard—the second-highest score among the FDIP countries for that dimension. Since the end of the data collection period for the 2016 scorecard, Mexico has already made considerable strides toward amplifying its country commitment to financial inclusion.

For example, in June 2016, the President of Mexico launched the country’s national financial inclusion strategy, fulfilling a recommendation presented in the 2016 FDIP Report. The strategy is built around six pillars, including the advancement of financial education, the use of technology to improve financial inclusion, the development of financial infrastructure in underserved areas, increased access to and usage of formal financial services among marginalized populations, the promotion of financial consumer protection mechanisms, and the generation of data and measurements to evaluate financial inclusion.

The enactment of Mexico’s financial inclusion policy was complemented by another commitment to promoting financial inclusion at the national level: In June 2016, the government of Mexico joined the United Nations-based Better Than Cash Alliance (BTCA). Together, these commitments are expected to promote efforts to accelerate engagement with the formal financial ecosystem among underserved populations. Given that a 2015 survey by the government of Mexico found that only 44 percent of adultsin Mexico over age 18 have a bank account, there is undoubtedly ample opportunity to expand financial inclusion.


Mexico’s recognition of the value in strengthening its digital ecosystem, as reflected in its national financial inclusion strategy and membership in BTCA, has been a visible component of the government’s policy agenda for some time. In 2013, the Mexican government launched its “México Digital” strategy, with the creation of a digital economy as one of the strategy’s key objectives. Mexico’s focus on augmenting its digital landscape has yielded demonstrable benefits: For example, a 2013 report published by the BTCA found that the government saved about USD 1.3 billion a year by digitizing and centralizing wages, pensions, and social transfers.

With respect to mobile capacity in particular, Mexico received a score of 83 percent on the 2016 FDIP scorecard, the third-highest score among the FDIP countries for that dimension. Mexico performed particularly well in terms of the extent of 3G network coverage and the diversity of offerings within its mobile financial services ecosystem. Moving forward, room for growth remains with respect to certain elements of mobile infrastructure and services, particularly regarding unique mobile subscribership and smartphone adoption.


Mexico earned a regulatory environment score of 78 percent, the fifth-highest score among the 2016 FDIP country sample. Among the strengths of Mexico’s regulatory environment is its tiered know-your-customerprocess, which enables individuals that are at the margins of (or outside of) the formal financial system to access secure, affordable deposit accounts by simplifying the documentation requirements for account opening to be proportionate to the perceived level of risk posed by the customer.

Ongoing efforts to advance interoperability across mobile money services (discussed below) should enable Mexico to further strengthen its regulatory environment score in the future, and the development of comprehensive electronic money regulations could bring greater clarity to the digital financial services market and facilitate the entry of a greater number and diversity of financial service providers.


With respect to the adoption of traditional and digital financial services, Mexico received a score of 58 percent—the sixth-highest score for that dimension among the 26 FDIP countries. While Mexico possesses fairly robust mobile infrastructure and a variety of mobile money offerings, Mexico’s mobile money account-related indicators each received a score of “1,” the lowest score possible under the FDIP scoring system.

However, while there is considerable room for growth in mobile money takeup in Mexico relative to some other countries in the FDIP sample, it is noteworthy that Mexico’s percentage of mobile money account ownership among adults age 15 and older as of 2014 was double the average for the Latin America & Caribbean region and nearly five times as high as the average for upper middle income countries.

We anticipate that with increasing smartphone penetration, Mexico’smovement toward mobile money account-to-account interoperability, and ongoing policy and regulatory efforts to promote formal financial services, adoption of financial accounts in Mexico will continue to increase among underserved populations.

DEL OTRO LADO: Financial behavior of households receiving international remittances in the Mexico Financial Diaries

04 May 2016

This report was commissioned by the Remittances and Savings Program of the Multilateral Investment Fund to provide insight into the financial lives of remittance recipient households in Mexico. This information will inform both private and public sector initiatives to leverage migrant remittances for wealth building throughout Latin America and the world.

The research finds that remittance income is just one of many sources of income for these families. On average, households earned income from 6.5 different sources during the Financial Diaries study, including remittances. Remittance payments tend to be irregular and may exacerbate income volatility. The frequency of remittance payments is often a function of the employment situation and financial needs of the migrant sender. The research shows that some households are able to use financial instruments to smooth consumption in the absence of consistent income. Among the households included in this study, informal credit instruments dominate financial portfolios. The most common informal credit instrument used were loans from friends and family, buying goods on credit from local shops, and participation in rotating savings and credit associations (ROSCAs). The study found that families direct the majority of their remittance income towards daily household expenses, including increased spending on healthcare, better quality food, and education. In addition to meeting their basic household needs, recipients also leverage remittance payments as a sort of insurance mechanism, and request money in the case of emergencies or an unexpected need. Finally, the study showed that housing, education, and preparing for the migrant remittance sender’s return were the main motivations for saving among these households.

Six Randomized Evaluations of Microcredit: Introduction and Further Steps

16 Sep 2015

This paper seeks to identify the causal effects of expanded access to microcredit on borrowers and communities using six randomized evaluations. The evaluations are based on a variety of sampling, data collection, experimental design, and econometric strategies. The methods are deployed across urban and rural areas of six countries in four continents representing vast disparities in terms of borrower characteristics, loan characteristics, and lender characteristics. The paper finds a consistent pattern of modestly positive, but non-transformative effects of microcredit. Other highlights include:

  • Studies do not find clear evidence, or even suggestive evidence, of reductions in poverty or substantial improvements in living standards;
  • There is strong evidence suggesting that businesses expand, though the extent of expansion may be limited, and there are hints that profits increase with access to microcredit;
  • Analysis shows that it is likely for access to microcredit to have an effect on occupational choice, business scale, consumption choice, female decision power, and improved risk management;
  • There is little evidence of harmful effects of microcredit, even with individual lending at high real interest rates;
  • Analysis of heterogeneous treatment effects of the studies suggest the possibility of transformative effects on some segments of microlenders’ target populations.

Sustained Effort, Saving Billions: Lessons from the Mexican Government’s Shift to Electronic Payments

26 Aug 2015

Thanks to a concerted and well-planned shift to electronic distribution of many government payrolls, pensions and social benefits, the Government of Mexico is saving a significant amount of funds. In the first of the The Better Than Cash Alliance Case Study Series to be released, researchers identify the many billions that are estimated to be saved by the Mexican government each year. It also provides key lessons for other governments that are undergoing similar efforts around the world. The full report can be viewed in the Evidence Paper. An abridged version is available in highlights while the factsheet provides a quick overview of the findings.

Why Mexico transitioned to electronic payments In the mid-1990s, federal government spending in Mexico was highly decentralized:

  • Dependencias had one or more accounts at commercial banks;
  • Tesofe maintained accounts at these same banks;
  • When Dependencias requested their budgetary appropriations, Tesofe transferred the money — within the banks — from its accounts into those of the Dependencias, where it sat until being disbursed. The process provided ample opportunity for delay and confusion:
  • Dependencias had to hand-deliver the paperwork showing they were entitled to the transfer;
  • Tesofe had wide discretion on the timing to execute transfers;
  • Tesofe had no means to assess whether the money was spent as authorized; and
  • There were no centralized guidelines outlining the remuneration banks had to offer the Dependencias in return for keeping the float in their accounts prior to disbursement.

The Challenge of Understanding Pricing of Micro-loans

28 May 2014

For decades, the microfinance industry made a rather disciplined effort to ignore prices we were charging on our loan products. That changed with the Compartamos IPO of 2007, where the largest MFI in Latin America made hundreds of millions of dollars in profit while charging interest rates of over 100%. This provoked intense discussion as the industry tried to understand what true interest rates really are, and as we tried to determine what rate Compartamos was really charging its clients.

Thanks to Compartamos’ transparency on its financial statements, we had access to ten years of financial reports; however, we still had no real idea of what price they were charging. Compartamos publicly claimed its interest rate was approximately 82%, yet even on its own website, the organization stated that its primary loan product had an annual interest rate of 105%, including the 15% government tax. Which of these is the price? Or is it something different? Or is there really no one figure that is the true price? This paper uses the Compartamos example to explain how interest rate calculations work and why there is so much confusion over what true prices really are. We will also see that most MFIs in Mexico use similar pricing systems – Compartamos is not an aberration, but rather more the norm of practice in Mexican microfinance.

How to Develop an Institutional Code of Ethics

06 May 2014

The Smart Campaign’s client protection principle on Fair and Respectful Treatment of Clients encourages financial service providers to treat clients with fairness and respect and to ensure that measures exists to detect and correct corruption and abuse, particularly during the credit sales and collection processes.

An institutional Code of Ethics helps employees practice fair and respectful treatment of clients by defining clear standards of ethical behavior that they must uphold. A written Code does not ensure ethical conduct, but it is the first step toward creating an ethical organizational culture. In other words, establishing high standards of ethical employee behavior is a two-part process; first, the institution defines standards of behavior, and second, those standards are brought to life throughout the institution. This guide will focus on the first part of the process—defining standards of behavior through a formal Code of Ethics.

Most microfinance institutions already have a Code of Ethics, but many of these Codes are not “living” documents that carry significance within the organization. This short guide provides concrete suggestions for creating or remaking an institutional Code of Ethics.

Código de Ética y Conducta

06 May 2014

En Compartamos tenemos fuertes valores compartidos que delinean nuestra personalidad y que se expresan a través de acciones concretas que siempre buscan el bien de los demás. Nos dedicamos a ofrecer oportunidades, te invito a que des el primer paso aceptando tú mismo la oportunidad de convertirte en mejor persona, de servir con un interés auténtico en la persona, de vivir y trabajar con pasión y responsabilidad, de reconocer el valor de los demás aprendiendo a trabajar en equipo y a generar riqueza económica, social y humana al servicio de los demás. Es la oportunidad de vivir con plenitud y recorrer el camino de la felicidad.
Nuestro Código de Ética y Conducta no es sólo para leerse: es para vivirse. Hoy, formas parte de un equipo ganador, pero ninguno de nuestros éxitos valdría algo si nosotros mismos no somos personas en las que nuestros clientes, los demás colaboradores y consejeros, accionistas, inversionistas y proveedores puedan confiar plenamente. Nuestro mayor éxito es la vivencia de la Filosofía Compartamos, la cual tú construyes diariamente con cada una de tus acciones, actitudes y decisiones.

Compartamos Initial Public Offering: A Case Study on Microfinance Interest Rates and Profits

02 May 2014

On April 20, 2007, Banco Compartamos, a microfinance institution (MFI) that was launched in 1990 and originally funded by grants from various sources, including CGAP, completed a landmark initial public offering (IPO) of its stock. The IPO was 13 times oversubscribed and considered a huge success by any financial market standard.1 Pent-up demand caused the share price—representing 30 percent ownership in the bank—to surge 22 percent in the first day of trading. Demand was driven by the exceptional growth and profitability of Compartamos, a dearth of Mexican investments for emerging market portfolios,rarity value, strong management, and the appeal of microfinance.

The spectacular success of the IPO was a milestone not only for Compartamos, but for microfinance. Mainstream international fund managers and other truly commercial investors—not socially responsible investors—bought most of the shares. The transaction will probably give a significant boost to the credibility of microfinance in commercial capital markets and accelerate the mobilization of private capital for the business of providing financial services to poor and low-income people.