Globalisation and the experience
of proximity banking
“Savings banks: the retail gateway to a global market.
Driving sustainable development”
Mr. Javier Gavito Mohar
CEO Bansefi Bank Mexico
21 – 22 September 2006, Kuala Lumpur
Social Bank
“Globalization and the experiences of proximity banking”
WSBI World Congress
Kuala Lumpur, Malaysia
September, 2006
2
In Emerging Economies....
•
Formal financial systems are characterized by lack of depth, leaving the majority of the population without
access to financial services.
•
Consequently, low-income households use informal financial markets, which function with high interest rates
and no regulations, making transactions insecure.
•
This situation has limited the growth of the productive activities, as well as the economic development at the
regional level. Additionally, it becomes an obstacle to alleviate poverty.
•
In order to address this problem, developing countries had opted for two formal solutions.
– 1) Market Solution ⇒ cover market failures trough the traditional financial sector.
– 2) State Intervention ⇒ cover market failures by creating development banks or targeted funds.
•
None of these options have been able to overcome these market failures and thus to complete and deepen
the financial system, therefore the demand for financial services for the poor remains unsatisfied.
3
In Mexico…
•
Historically, both, the market and the state intervention models have not been able to cope with the challenge
to deepen the financial system.
•
This situation generated the creation of an array of entities with different legal status aiming at serving the
demand for financial services of the poor. Many of these have been in the market for more that 50 years and
most of them have not been regulated and supervised by the financial authorities.
•
Thus the semi-informal solution has had a life of its own and has marginally been able to attend the demand.
•
The Semi-informal Sector is comprised by more or less 600 privately or collectively owned financial
intermediaries, strongly linked to their communities.
4
Implementation of Social Banking will cover for actual
market failures
TRADITIONAL BANKING
• Commercial banking
• Development
banking
SOCIAL BANKING
• Savings and credit
entities
• Microcredit
institutions
Mainly
large
and medium sized
companies, and
individuals with high to
Small- and medium-sized
enterprises and
individuals with
medium to low income
Selfemployed/
population
and microenterprises
Currently unattended
Currently unattended
Income pyramid of the Mexican population
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The Creation of the Social Bank
•
President Fox Administration, with the help of Congress, design a Public Policy in order to transform the semiinformal financial sector into an opportunity for deepening the financial system.
•
This policy includes the following tasks that will converge in time:
a) To support the transformation of the Sector into a framework that provides legal certainty and helps
to strengthen their institutional capabilities.
– Legislative action by Congress in order to approve an adequate Legal and Regulatory framework
according to international standards: the Popular Credit and Savings Act was approved in April 2006.
– Government Investment, through fiscal transfers, aimed at financing technical assistance and training
programs to strengthen the institutional capacities of the sector.
b) Temporary governmental investment in the creation of central entities that provide services
such as Second Tier Bank for the Sector that will be transfer to the sector.
– Creation of a Developing Bank (BANSEFI) as the State instrument to promote and coordinate the
transformation of the semi-formal sector.
– The creation of service entities to strengthen the Sector. Investment in: Institutional Bank -Caja de cajas-,
Technological Platform, L@ Red de la Gente, as well as Afore de la Gente.
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Network´s Model and the Legal Framework
•
The legal and conceptual model of the savings and credit sector is based in networking systems. These systems
have proven their success in many social banking systems such as the German, the Canadian and the Savings
and Credit Cooperatives in Mexico.
•
The Network’s Model promotes a distribution of functions between the members of the Social Banking Sector,
which increases the efficiency and the competitiveness of the members of the system
Base • Responsible for the main activities on the part of the net, are in direct contact with the market
and provide main services (financial products). The small size of these entities is crucial to
Entities
keep their competitive advantage.
Central
Entities
• Provide those activities where economies of scale and scope can be used to strengthen and
upscale the activities of the Base Entities.
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Network´s Model and the Legal Framework
EMIGRANTS
URBAN AND RURAL COMMUNITIES
Integral financial services
L@Red
de la Gente
Base
Entities
Central
Entities
SACCO
SACCO
Branches
PFP
PFP
Entities
Levels I to IV
DEVELOPMENT BANKS
FEDERATION
FEDERATION
CONFEDERATION
SACCO = Savings and Credit Cooperative
Subsidiaries
PFP = Popular Financial Partnership
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BANSEFI’s Objectives

In order to support and coordinate the development of the Popular Savings and Credit Sector, in November
2001, the National Savings Patronage (PAHNAL) was transformed into the National Savings and Financial
Services Bank (BANSEFI) with the aim of achieving three objectives:
1)
To Promote Savings
– As of July 2006:
 BANSEFI’s branches = 521
 Savings Accounts = 3’345,084
 Deposits = 6,805.9 million pesos
2)
To Develop Central Entities




3)
L@ Red de la Gente
Technological Platform
Savings and Credit Institutions Bank
Pension Fund: “Afore de la Gente”
To Support the Sector
 BANSEFI’s Role:
Contribute to strength the
Popular Banking Sector
In order to be able to
Widen the financial
services to the majority
of the population
 Technical Assistance
 Training
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Develop Central Entities
•
BANSEFI’s business plan considers 4 units operating as Central Entities, one enabled to act as a Base
Entity, and one Supporting Area (technical assistance):
BANSEFI
L@ Red de
la Gente
Technological
Platform
Savings and
Credit
Institutions
Bank
Pension Fund:
“Afore de la
Gente”
Technical
Assistance
Savings and Credit Entities and BANSEFI’s Branches
Central Entities

Provide those activities where economies of scale and scope can be used to strengthen and
upscale the activities of the Base Entities.
Base Entities

Technical
Assistance
Provide financial products in direct contact with the market. The small size of these entities
is crucial to keep their competitive advantage.

Provide Government’s financial support through fiscal transfers; offered temporally to help
on the transformation of the Savings and Credit Institutions according to the new law.
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1) Base Entity: BANSEFI’s Branches
Promoting a Savings Culture
• Since the transformation of PANHAL into BANSEFI (January 2001), savings accounts have increased from 850,000 to
more than 3.3 million in June 2006.
• BANSEFI’s network includes 521 branches, half of which are located in places that the presence of the Commercial
Banks is minimum or inexistence. We are now opening an average of 25,000 new accounts per month.
• In order to promote saving behavior, an account can be open with less than $5 USD, no fees are charged and market
interest rates are paid.
Thousand
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
1994 1995 1996 1997 1998
Growth
268%
1999
2000 2001 2002 2003 2004 2005
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1) Base Entity: BANSEFI’s Branches
• Distribution of Government Support Programs such as Oportunidades throughout savings accounts:
Bansefi distributes, though its branches and L@Red de la Gente, payments to the beneficiaries of Federal
Government programs, in order to attain transparency in the distribution, as well as to incorporate the
population to the financial system. This is triggered by the opening of savings accounts in BANSEFI, which
has increased the benefits of such programs.
• As of July, 2006, 1.2 million savings accounts had been opened for the families that are beneficiaries of
Oportunidades* in which the financial aid is deposited. In addition, a total of 1.1 million families received cash
payments through BANSEFI. We also attend 270 thousand students beneficiaries of the Jóvenes con
Oportunidades program.
• As a result, all the beneficiaries are now part of the formal financial services for the first time in their lives.
• Housing Programs: Together with the main Government’s Housing Institutions (INFONAVIT, SHF, FONHAPO
and FOVISTE), Bansefi has created a savings mechanism in which, prior to obtaining a loan, families or
individuals open an account and save their money in order to obtain a mortgage loan. The array of products
offered allow us to reach people from different income levels and working conditions.
*Oportunidades is one of the most successful programs in alleviating poverty. It allows the children of the low income families to
have access to education.
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Savings as a vehicle for the population’s well-being
Well Being of the
Population
Migrants Remittances
Pension
Mortage Loans
Governmental
Programs
Savings
Account
Insurance
Commercial
Loans
Tangible Effects on
wealth
accumulation
Intangibles Effects:
• Self confidence
• Security
• Formalization
• Sense of
belonging
Other financial
products
Federal
Housing Programs
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2) Technical assistance
•
BANSEFI in coordination with World Bank, Financial Authorities and Federations, has organized the
Consolidation Program, for providing training and technical assistance to the microfinance sector.
•
Prior to authorizing the transformation of an Entity under the law, there was the need to evaluate their financial
condition and their capacity to comply with the regulation. This is being done by the Federation’s Supervisory
Committee with the assistance of an external expert.
•
The evaluation standards and diagnose methodologies include financial, operations and governance indicators
related to the legal framework and its regulation. Evaluation standards classify the financial intermediaries as
follows:
A. Intermediaries that are ready to be authorized;
B. Intermediaries that require an improvement program to be authorized;
C. Intermediaries that will have to split, to merge or to reorganize their structures and internal control;
D. Intermediaries that will have to be liquidated in an orderly manner.
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Technical Assistance contracts
SPARKASSEN
(GERMANY)
(QUEBEC, CA)
Project 1: Jalisco and
Monterrey
Project 2: “Cajas Solidarias”
– National level
2 Federations
1 Federation, 156 intermediaries
-49 intermediaries
6 technical assistance
contracts were originally awarded
through competitive processes
(QUEBEC, CA)
Project 3: Querétaro,
D.F. and
Morelos
4 Federations
81 intermediaries
For 12 Federations & 380 intermediaries
WOCCU
USA
Project 4: Michoacán and
Guanajuato
Project 6: Guanajuato,
Jalisco, Michoacán,
other states
2 Federations- 40 intermediaries
1 Federation 21 intermediaries
GERMANY
Project 5: Oaxaca and
Mérida
2 Federations
35 intermediaries
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2) Technical Assistance
Current situation of the Savings and Credit Cooperative Societies
On January 1st, the LACP started taking effects with the following results: 12 Federations with its
Supervision Committees were authorized.
As of July 2006, the situation of the 449 societies that have been working to observe the Law is the
following:
584
Total
449
Regular
13
Authorized
•
•
13
In evaluation CNBV
135
Irregular
371
With prerrogative
59
Under Art. 4 Bis
22
Without Prerrogative
113
Dissidents
Three soicieties with prerrogatives are also under the evaluation of the CNBV.
Without taking into account the proyects of SOFIPO that are not still authoriezed, we have 384 societies.
Classification
# Entities
% of Total
Associates
% of Total
Assets
% of Total
Authorized
13
3.4%
250,777
6.96%
2,690,885
6.12%
B+
112
29.2%
2,315,312
64.25%
28,534,377
64.85%
B
194
50.5%
868,717
24.11%
10,529,414
23.93%
C
65
16.9%
168,635
4.68%
2,248,835
5.11%
Total
384
100%
3,603,441
100%
44,003,512
100%
B+ is equivalent to A on the initial methodology
CNBV: National Banking and Securities Commission
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3) Central Entities: Second Tier Bank
Becoming the bank for the Credit and Savings Entities
•
•
•
BANSEFI is being transformed into a Second
Tier Bank for savings and credit entities.
Therefore, Bansefi should be offering financial
services to this institutions in order to promote
the following:
– Increasing their income by expanding the
range of products available to their
customers and members;
– Reducing their costs of regulation and
operation; and
– Improving management efficiency and the
quality of their services.
The cost of the products and services offered by
BANSEFI must be competitive and the entities
will choose freely to demand these products and
services.
As the Popular Banking sector is capitalized, the
participation of the Federations in the capital of
BANSEFI will be promoted
Payment System
- Checks
- Electronic Transfers
- Clearinghouse
Products of Cards
Payments - Debit
- Credit
Electronic means
ATMs
POSs
Electronic Banking
Trading
Investment Funds
Financial
FX
Products
Trustee
Derivatives
ALM and Risks
Consulting
Private Banking
Products
Accounting, Fiscal, Legal
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3) Central Entities: La Red de la Gente
 “L@Red de la Gente” is a commercial alliance between BANSEFI and the regulated intermediaries of the Social
Banking Sector that join voluntarily. This alliance will facilitate the sale and promotion of financial products and
services in a sector of the population that does not have access to them, as well as promoting the distribution of aid
from government programs.
 Today there are 93 members with 1,270 branches (including BANSEFI). Most of them located in semi-urban and rural
areas, where commercial banks usually have no presence.
Creating a Commercialization Network
Programs and Products distributed through “L@ Red de
la Gente”
REMITTANCES
Savings and
Credit
Institutions
COMMUNITIES
GOVERNMENT
PROGRAMS
HOUSING
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3) Central Entities: L@Red de la Gente
•
Distribution of governmental programs: A total of 146 thousand families had been paid throughout 4
members of L@Red de la Gente since the first semester of the year.
•
Housing: An important achievement of the present administration consists in the establishment for the
first time of a relation between the SACCO and the main Housing Institutions.
•
Remittances: The number of transactions has increased in an important way. In August 2006 we paid
approximately 89,000 remittances, in comparison with the 11,000 transactions paid in January . 2002.
We have no 2% of the market
•
•
•
Bansefi receives account to account transfers
through “Directo a Mexico”, a service offered by
the Federal Reserve and the Central Bank of
Mexico.
Remittances paid by L@Red de la Gente
(transactions)
100,000
90,000
This mechanism allows Community Banks and
Credit Unions to enter the remittance market,
providing: reliable cross-border ACH service to
Mexico; access to L@Red de la Gente at the
lowest price in the market.
80,000
Furthermore, it allows for the bancarization of
migrants and their families in both sides of the
border.
10,000
70,000
60,000
50,000
40,000
30,000
20,000
0
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Technological Platform
•
Design and development of the technological infrastructure and the adequate systems according to the needs
of the Microfinance Sector and BANSEFI, to be able to offer financial products and services in an efficient way.
– The design of the technological platform will allow the Microfinance Sector to operate in network,
minimize costs of operation and supervision, as well as improve the decision making processes .
– The parametrizable core banking system will allow the Entities to grow their portfolio of products in a
simple way.
– The technological design is based in the autonomy of the institutions.
– It is scalable according to the Institutions’ needs.
– The technology services will be provided mostly through outsourcers.
•
Currently, four savings and credit institutions are already in operation; there are 83 more entities that have
singed letters of intention to enter the platform.
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Technological Platform
•
The Technological Platform that BANSEFI offers to the Sector is integrated by:
Applicative System
Data Center
Communication
Network
Shared with the necessary functionality to manage its products,
clients, branches, internal operations, planning and compliance with the
regulation. (IBM and Temenos Core Banking)
Shared to store the systems and the data of each intermediary
securely and independently. (ATOS Origin)
Network that interconnects all intermediaries with their branches and
to external institutions with which they will collaborate for commercial or
regulatory issues. (Global SAT)
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Technical Assistance and
Training
FEDERATION
Savings and Credit
Entities
Working Plan
A
B
L@RED DE LA GENTE
Network creation
Generating additional income
Increasing number of product and services
Market access
IT PLATFORM: “Integra T”
Reducing costs
Improving efficiency
Improving supervision
Increasing services
Supervision Committees
C
Merge or
Acquisition
Legal Consultancy,
D
Liquidation
Savings recovery
Trust for
protecting
depositors
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Final Remarks
•
The Social Banking System is destined to play an strategic role in the future Mexican Financial System.
•
The new legal framework is the first step to give certainty to depositors and investors participating in the
Sector.
•
The Sector has a distribution network well positioned to cover the areas where commercial banks have no
presence or knowledge of the local markets. This will be a powerful tool to bank the unbanked.
•
The incorporation of technology, technical assistance, regulatory compliance and best governance practices
will be key drivers in the Sector.
•
The transformation and formalization of the Sector will contribute to deepen and complete the Mexican
Financial System, allowing more people –particularly those with low levels of income– to have access to
financial products and services and hence to new opportunities to promote their development.
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