Go to any corner shop in Mexico and the chances are there will be a cluster of people buying avocados, detergent, green tomatoes and nopales – cactus paddles best served fresh from the grill.
But if the country’s banking regulator gets its way, these customers could soon be using the same shop to pay their utility bills, deposit money and even make cash transfers to loved ones in far-away states.
This week, Mexico’s Congress is expected to debate the implementation of so-called correspondent banking, a service that will potentially allow ordinary Mexicans to carry out basic financial transactions without having to walk beyond the corner of their block.
However, the debate has turned bitter and divided the local financial community. There is friction between the Senate and the lower house over a clause stating that financial institutions will only be able to raise 25 per cent of total deposits through correspondent banking, with the lower house insisting that the regulator should have discretionary powers to override the rule.
Now that Congress has reconvened, Mexican banks such as that of Wal-Mart, the US retail giant, are pushing to persuade legislators that the model cannot work unless the regulator has discretionary power because it will make life impossible for banks starting from scratch.
“The clause makes the system very rigid,” says Raul Argüelles, senior vice-president for corporate affairs at Wal-Mart in Mexico. “What are we going to say to somebody who deposits 100 pesos in their account that happens to take us over the 25 per cent limit? ‘Sorry, we can’t take your money?’”
According to Guillermo Babatz, president of the National Banking and Stock Exchange Commission (CNBV), the regulator, a correctly drafted law could solve an age-old problem in Mexico: a dearth of bank accounts and branches.
Mexico is Latin America’s second-largest economy, but only 25 per cent of the working population has an account. In Brazil, where correspondent banking has been active for several years, more than 40 per cent of the population has accounts. In Chile, the figure is 60 per cent. As for branches, Mexico has just 0.08 for every thousand inhabitants, compared with 0.1 in Chile, 0.34 in Spain and 0.62 in the UK.
“People don’t have access to the system,” admits Mr Babatz. “Nobody is offering products for those people and, even if banks are offering certain products, people are not interested because branches are too far away.”
The scheme has taken on more urgency since the global financial crisis, which has hit Mexico hard and is expected to reduce significantly banks’ expansion plans this year. The CNBV, for example, expects expansion of traditional services, such as consumer credit, to come to a standstill.
In particular, correspondent banking will enable existing financial institutions and new banks to increase their client base quickly without having to invest in bricks and mortar or take on new employees. For Mexico’s microfinance organisations, such as Compartamos, it will also mean being able to tap alternative sources of funding beyond the increasingly tight wholesale market.
“It makes no sense to build traditional banking infrastructure to mobilise small amounts of money,” says Carlos Danel, co-head of Compartamos.
But Luis Niño, president of Banco Azteca, the country’s leading low-income bank and a part of Mexico’s powerful Salinas Pliego group, insists that the 25 per cent rule is vital for ensuring fair competition.
“Until now, banks have had to comply with every single regulation, and have had to invest in branches and qualified personnel, all of which is an expensive proposition,” he says. “This [scheme] is not about giving Mexicans bank accounts. It is about letting a new player on the block – Wal-Mart.”
Mr Danel of Compartamos is sensitive to these concerns. But he argues that Mexico needs to embrace a new model if financial institutions are to roll out the sorts of low-cost services that poor Mexicans require. “You need to have an infrastructure that lowers the final cost of the product for the client.”
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