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Results Profile: Mexico Finance                                                                       March 15, 2010




 CONSOLIDATING FOR EFFICIENCY

 Reforms Help Mexico’s Development Finance Institutions Thrive




Overview
A decade ago, Mexico’s development banks accounted for one-fifth of the total credit provided
by the banking sector, yet their operations were often inefficient, ineffective and blighted by
                                               
high costs and undue risks. The International Bank  for Reconstruction and Development
(IBRD) worked with the Mexican government to slim down the number of development banks
and to make them more effective and accountable – thereby ensuring public funds were being
well-targeted and efficiently used.  

   Full Brief—5 Pages
Transforming Mexico’s Development Financial Institutions—PDF, April 2010


Challenge
At the beginning of the 2000s, state ownership in financial
                                                                     More Results
intermediation in Mexico accounted for about 20 percent of
the total credit of the banking system, provided through

                                                                     35%
development financial institutions (DFIs) and funds.
Development banks faced a number of problems; some had
unclear mandates and activities that overlapped with
commercial banks. Their operations were often inefficient            increase in credit portfolio
                                                                     supported by development
with high costs, too many employees and weak internal                banks, during the worst months
controls.                                                            of the financial crisis



Approach                                                             MORE INFORMATION
Based on recommendations of the joint World Bank-
                                                                      World Bank in Mexico
International Monetary Fund (IMF) Financial Sector
Assessment Program in 2000, the Bank used ongoing and                 Financial Sector Assessment
new lending to transform development financinal institutions.         Program
For example, a restructuring loan helped transform the                Sociedad Hipotecaria Federal
Financial Housing Aid Fund into the Federal Mortgage
                                                                      Nacional Financiera
Corporation, a well respected and market-engaged
institution.
                                                                     PARTNERS
A Rural Finance Development Structural Adjustment Loan
assisted in the liquidation of Banrural, an institution that          Inter-American Development
introduced huge distortions in the rural finance markets, and         Bank
instead established the Financiera Rural to provide financial
services to small/mid-sized rural markets.

Finally, a Savings and Rural Finance Loan helped with the         
transformation of Pahnal, an economic vehicle to invest small
depositors’ savings in risk-free government instruments, into
Bansefi, to provide cost-pooling for technological development and a common marketing brand
for cooperatives.


Results
Through reform, Mexico has achieved a more targeted, accountable and sustainable approach
to DFIs, including:

Rationalization. The number of DFIs was halved to six through mergers and closure of poorly
performing institutions. DFIs broadly support the development of different financial market
segments, in trade, infrastructure and housing.

Governance structure. DFI Boards strengthened their independence through mandatory
participation of independent and qualified members, and improved disclosure and transparency
through annual submission of operational and financial plans.

Transparency and accountability. DFIs are now required to publish indicators measuring their
services to target populations. The Ministry of Finance is required to conduct and publish
independent evaluations on DFIs.

Financial performance. All DFIs showed positive positions in 2008 and during the first half of
2009.

Innovation. DFIs in Mexico now provide new, market-friendly instruments to promote access to
financial services for small- and medium-sized enterprises.

Counter-cyclical role. From September 2008 through March 2009, during the worst of the
financial crisis, the credit portfolio supported by development banks increased by 35 percent.


Toward the Future
A joint Bank-Ministry of Finance conference will take place in June 2010 to develop a blueprint
for further development bank reform. Remaining challenges include better DFI coordination,
performance measurement and effective use of DFIs as counter-cyclical policy instruments.

The Bank Board approved in 2008 a loan to Sociedad Hipotecaria Federal to strengthen its
financial capacity, to develop and consolidate markets for housing finance, and to expand
access to lower income groups. A loan to Nafin and Bancomext is in preparation to foster the
market development of financial services for small- and medium-sized enterprises, the export
sector, and private sector investment projects.
 

 


                                                    Last updated: 2010-04-20