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Microfinance Changes People's Lives

By Patricio Diez de Bonilla - Compartamos Banco
Chief Executive Officer


By Patricio Diez | General Director - Tue, 09/19/2023 - 09:44

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There is a segment of the population in Mexico that still does not have access to the use of various financial services, specifically credit: the low income segment. This impediment makes it difficult for people to have capital to start their venture or boost their businesses. 

Microfinance, which has been present in Mexico for more than three decades, is one solution. Although the model was born in the 1970s in Central America and then in Bangladesh, the methodology was improved in the 1980s and, finally in the 1990s, microcredit emerged with other financial services, such as savings, insurance, payments, and remittances, reaching many Latin American countries. 

Since the emergence of microfinance, millions of people have been able to access formal financial services. Specifically, the credit vehicle has been the gateway for people to know other financial products and take advantage of them, with a positive impact on their lives, mostly women. 

Microfinance also promotes women's financial inclusion, economic growth, self-employment, and financial empowerment, as well as household decision-making. In countries like Mexico, where migration is common in many communities, women are responsible for their families and this access is an important tool for their development.

There are different microfinance schemes; however, group lending is one of the most successful products in Mexico. This refers to a group of people (five to 50 individuals) who know each other, and although everyone receives an individual loan, they make the commitment to pay their credit and help each other if anyone faces any difficulty.  The reason for working this way is because of the lack of information in these segments. Also, these kinds of loans require no collateral, so it’s essential that they approve and know the size of the loan of the other members of the group.

Most of the groups are women-only based, but there are other methodologies that accept men.

Compartamos Banco started 33 years ago, under the premise of including people financially, bringing financial services to people in the popular segment, in those remote communities. Responsible microfinance, with people-centered methodologies, established under regulated, reliable guidelines and protecting people, has many more benefits than just "lending" amounts of money. 

Being close to clients and listening to their aspirations and needs have led institutions like Compartamos to develop and adapt financial services that are simple and convenient: 

  • Savings so that people can be prepared for an unforeseen event

  • Insurance with which they can protect themselves, their family, and their assets 

  • Transaction channels for the last mile or close to their community

  • Financial literacy as part of the delivery of the service

It should be considered that regulation is an important piece of this development. Governments have tried to work closely with the institutions to boost financial access. In the end, it is an important part of the economic growth of any country. People having clear and accurate information about the type of credit they request ensures  they have a pleasant experience, which leads them to trust and continue hiring other financial services, which will undoubtedly help them in their daily lives and in the future. 

Over time, microfinance has strengthened, evolved, and reached more people. Today, digitalization has also shortened gaps with people in traditional banking, but entities such as the World Bank assert that technology could make financial inclusion available to everyone. However, a remaining impediment is the infrastructure that is null or limited in many populations of the country, which makes it still difficult.  

Undoubtedly, microfinance changes people's lives. It is giving them more than a financial service; it is providing the opportunity to realize their dreams. Success stories in which people manage to undertake, grow their businesses and then fulfill goals, such as their children finishing their studies, buying new assets, such as houses or cars, achieving the trip they dreamed of, employing more people in their businesses, or being recognized in their communities, are common due to the combination of this access and their effort.

Photo by:   Patricio Diez de Bonilla

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