Learning Where and How to GrowSat, 09/01/2018 - 12:29
Although some players might be wary of catering to the SME sector, especially under volatile economic conditions, this market offers an excellent opportunity for growth. Financing partners must find the right way to support these players, says Eduardo Castillo, Deputy Director General of Automotive Financing at UNIFIN.
Castillo says that Mexico’s need for financing options and UNIFIN’s portfolio of financing products make for a winning combination to cater to the needs of SMEs. “We have created a niche where we can thrive financially while supporting financing in Mexico,” he says.
So far, there is no particularly aggressive competition in Mexico’s leasing market because banking institutions do not consider leasing as a sound investment option and are not interested in taking part in it, according to Castillo. Nevertheless, UNIFIN has found its niche, acting as a SOFOM that focuses on financing, leasing and factoring mainly for SMEs in different sectors such as automotive. About half of the leasing services that UNIFIN has marketed are oriented to the acquisition of transportation equipment. “We have grown to hold between 5 and 8 percent of the Mexican leasing market,” he says.
UNIFIN has secured its market share by attacking automotive segments where it could more easily compete, betting on the potential of Mexican SMEs and constructing hedge funds to offer competitive loan costs despite exchange and interest rate variations. “For years we wanted to increase our share in the new-vehicle segment,” says Castillo. “But this segment is extremely competitive due to the presence of most OEM financial branches that have radically different funding costs compared to us.” Instead, UNIFIN chose to focus on other markets such as freight-based transportation and financing of trucks, trailers and other rolling stock. “We have reached a market share of 2-3 percent in that segment,” he says.
Mexico’s informal used-vehicle market is a potentially attractive target segment for UNIFIN’s automotive financing products. “This segment is four times the size of the new vehicle segment as 4-6 million transactions involving used cars take place in Mexico every year. Yet, this market has been largely neglected by financing institutions,” says Castillo. “Finding inexpensive loans with low interest rates is difficult in the used-vehicle segment.”
While the overdue portfolio in that segment is larger compared to the new-vehicle market, Castillo thinks UNIFIN could find a way to balance risks with benefits to go ahead. SMEs and owner-operators with small fleets have traditionally been among the main beneficiaries of UNIFIN’s financing product for rolling stock. With half of its total client portfolio in this market segment, UNIFIN has focused on creating financing products that cater to SMEs that lack access to large loans. “The average credit for used vehicles amounts to MX$110,000 (US$5,500),” he says. “The challenge is finding the right loan maturation period where monthly payments fit clients’ budgets.”
While it may be challenging to offer loans to companies in Mexico’s informal economy, Castillo says UNIFIN keeps a small overdue portfolio by understanding client needs and payment capacities, running efficient operations and thoroughly analyzing risk. “Our total credit portfolio amounts to approximately MX$60 billion (US$3 billion) and our overdue portfolio amounts to less than 1 percent of that,” he says.
UNIFIN’s competitive credit costs have also been an advantage that the company ensures by securing the availability of funds. “Bank loans, securitization of our assets and placing bonds abroad are our three main sources of funding,” says Castillo. “UNIFIN has practically satisfied its funding needs up to the second half of 2020.” Securitizing its own assets has also been highly beneficial for the company and its investors, mainly because of the attractive yields upon maturation that UNIFIN can offer. Pension-fund holders are among those that find UNIFIN’s offering especially attractive since the company’s stock normally yields effective interest rates plus two percentage points in periods of five years. Furthermore, since UNIFIN’s bonds in the US market are always linked to a hedge fund, the company eliminates the risk that variations in exchange rates could present.