Global Perspectives | Spring 2010
|Our newest partner, FRAC in Mexico, shares our goal of reaching rural populations.
In October 2009, Global Partnerships made its first loan to a microfinance partner in Mexico, Fundación Realidad (FRAC). Though the initial loan size to FRAC—$500,000—was relatively small, Global Partnerships’ expansion to Mexico represents an important step from an impact perspective because of the need for affordable, mission-focused microcredit in Mexico.
Although Mexico has a lower poverty rate than other countries where Global Partnerships (GP) works, for example Nicaragua and Bolivia, extreme poverty still exists in many parts of the country, particularly in southern states such as Chiapas and Guerrero. In addition, because of the unique characteristics of the Mexican microfinance market, interest rates are relatively high.
“People living in poverty in Mexico have fewer options for affordable credit than their counterparts in Central or South America,” explains Global Partnerships President and CEO Rick Beckett. “This is why it’s critical to invest in microfinance institutions such as FRAC that share our commitment to social impact.”
When GP began to look at the possibility of investing in Mexico, we conducted a rigorous screening process to identify potential partners that are mission driven, financially sound, and are reinvesting profits in programs that benefit their clients (see "How Does GP Enter New Markets?"). In Mexico, FRAC fit the bill: Not only are they dedicated to serving poor and rural populations, but they are also committed to keeping costs down for their clients.
FRAC, a World Vision affiliate, was founded in 1997 with the goal of improving socioeconomic conditions and economic opportunity for the neediest populations living in the areas where World Vision’s Area Development Projects (ADPs) are located. With 17 branches in 11 states, FRAC operates in some of the poorest areas in Mexico, including a number that have been hit with natural disasters. For example, FRAC was involved in a special project to channel assistance to the Tabasco area, which was affected by severe flooding at the end of 2007; beneficiaries received donated equipment and supplies as well as loans for working capital.
FRAC’s focus on social impact shows up in a variety of ways. It offers relatively small loans to a client base that is 87 percent rural and 82 percent women through a group lending model. It offers clients other credit services and a small education program. And through pilot projects, FRAC is testing other types of loans and programs to help clients succeed, such as an educational credit that clients can use to finance school expenses.
FRAC’s clients also benefit from an interest rate that, on average, is 12 percentage points lower than the Mexican microfinance industry average.
Microfinance in Mexico – the Compartamos factor
The microfinance industry in Mexico developed later than in other countries where Global Partnerships works, such as Bolivia and Nicaragua. However, in the last few years, it has experienced explosive growth. Mexican MFIs focused on microenterprise loans now reach an estimated 1.6 million borrowers. Between 2005 and 2007, the number of clients of these institutions more than doubled.
The market is also unique in that it’s dominated by one large commercial MFI, Compartamos, which was founded in 1990 and became a regulated bank in 2006.
“Compartamos is a large, commercial MFI that has become the primary player in financing microenterprises in Mexico,” says Dick Moxon, GP’s Director of Investment Analysis. While Compartamos has helped expand the reach of microfinance in Mexico, he notes, the lack of competitors to the MFI has contributed to keeping interest rates in the country high.
“There is a need in Mexico for microfinance organizations like FRAC that can serve clients with more affordable loans, and adapt to particular segments of the population,” he says.
As the Mexican microfinance industry matures, GP will look for new opportunities to invest in microfinance partners that share our commitment to expanding opportunity for people living in poverty. Working with FRAC is an exciting first step.
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