financial service needs for mexico’s low income customers

Financial Service Needs for Mexico’s Low Income Customers

July 5, 2011

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2

Contents

▪ Summary of key findings

▪ Household characteristics

▪ Segment profiles

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3

Context and purpose of the study

Context

▪ Financial inclusion in Mexico lags behind other middle income and OECD countries, with the majority of households considered either unbanked or underbanked.

▪ Those at the base of the economic pyramid (BoP) suffer most acutely from the lack of appropriate financial service options.

▪ Banks and other current and potential financial service providers lack a deep understanding of the BoP market, and have not conducted detailed market research and segmentation

▪ CGAP engaged McKinsey to conduct a market segmentation exercise to help fill this information gap

Purpose

▪ The purpose of the project is to provide financial institutions and other financial services providers with a strategic segmentation model that will allow them to:

– Identify priority segments within the BoP– Conduct deeper “go-to-market” market

research and product development with the chosen segment(s)

– design tailored products, value propositions and business models that can meet the needs of the BoP

▪ To identify, understand, and provide “color” on the BoP segments, we triangulated quantitative and qualitative methods:

– Interviews with 7 banks and service providers to understand their market segmentation needs

– Data mining of Mexico’s premier household survey database (ENIGH)

– Nationally representative quantitative survey of 426 BoP households

– In-depth interviews with 31 BoP households– 3 Focus groups with participants of 4 different

segments to validate and flesh out hypotheses

SOURCE: Team analysis

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4

We conducted quantitative and qualitative research across Mexico

▪ Over the last couple of weeks a total of 426 surveys have been applied:– 105 in Coahuila– 106 in Guanajuato– 110 in Mexico City and its surrounding areas– 105 in Yucatan

▪ In parallel, we have conducted 31 in-depth interviews:– 4 in Coahuila– 4 in Guanajuato– 12 in Mexico City and its surrounding areas– 2 in Yucatan– 2 in Morelos– 2 in Puebla– 4 in Tlaxcala– 1 in Nuevo León

▪ 3 focus groups were conducted in Mexico City, including 4 segments, to validate our findings


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Key questions about the base of the pyramid

Definition used: BOP considers households with monthly income below 18.3 K pesos (~1.6K USD)

Income level Income range# of HHs(100% = 26.7M)

More than $130K MXP

$40-130K MXP

3%

$18.3-40K MXP

12%

$10.8-18.3K MXP

18%

$8.7-10.8K MXP

9%

$6.7-8.7K MXP 12%

$4.6-6.7K MXP 17%

Less than $4.6K MXP

29%

AB

C+

Cm

C-

D+

Dm

D-

E

Total BOP 85%

Key questions addressed in the effort

What consumer segments can be identified at the BOP?

What are the characteristics of each segment?

What is their potential relevance for financial institutions?

What opportunities can be identified for financial institutions?

1

2

3

4

BoP

SOURCE: ENIGH, quatitative survey; team analysis

What are the key challenges related to capturing these opportunities?

5

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We identified 6 consumer segments at the base of the pyramid

Fo

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d

wo

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s

Fo

rmal

sal

arie

d

wo

rker

s

Middle income

Middle income

Low income

Low income

En

trep

ren

eurs

En

trep

ren

eurs Middle

income

Middle income

Low income

Low income

Informal salaried workers


Agriculture workers

Agriculture workers

% of HHSin Mexico1

(100%=26.7M)

17%

Average monthly income Total2 Savings3 Credit

Current penetration of banks and cajas

~$11.5 K MXP

14% ~4.6 K MXP

4% ~9.6 K MXP

10% ~$3.6 K MXP

20% ~$5.6 K MXP

8% ~$7.2 K MXP

A

B

C

D

E

F

▪ We identified 3 key

variables affecting

penetration of

current financial

services

– Type of

employment

– Income level

– Location of

household

1. What consumer segments can be identified at the BoP?

SOURCE: ENIGH, quantitative survey; team analysis

85% 74% 28%

67% 58% 21%

64% 48% 39%

41% 25% 24%

38% 18% 17%

46% 21% 25%

1 Excludes households with heads of household that are not economically active2 Considers if HHs have at least one product from a a financial institution3 Includes payrolls and other types of savings accounts

Insurance

41%

19%

30%

12%

19%

8%

52%52% 36%36% 23%23% 20%20%Total BoP

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Informal vehicles have an important weight in total savingsIn

form

al

En

tre

pre

ne

ur

Fo

rma

lS

ala

rie

d

At home In tandas

61%

47%

64%

34%

46%

38%

1. Mid-income

2. Low-income

3. Mid-income

4. Low-income

39%

39%

61%

37%

36%

33%

22%

17%

30%

12%

11%

8%

63%

54%

24%

12%

12%

4%

In a caja In a bank1

Formal products

1 Considers if the HH has either payroll or other types of current and savings accounts2 Average number of savings vehicles in households that mentioned to have at least one

Investing

20%

22%

64%

43%

23%

21%

Buying assets

17%

24%

24%

18%

16%

13%

SOURCE: Survey; team analysis

Av. # of products per HH2In the last year people saved money in…

1.3

1.5

1.3

1.0

1.3

1.1



Agriculture workers

Agriculture workers


Informal Formal

1.8

1.7

2.3

1.7

1.7

1.6

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8 SOURCE: Survey; team analysis

Info

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lE

ntr

ep

ren

eu

rF

orm

al

Sa

lari

ed

In the last year people used credit from…

Family/friends Employer

46%

54%

67%

67%

65%

71%

1. Mid-income

2. Low-income

3. Mid-income

4. Low-income

26%

30%

3%

4%

21%

33%

Formal products

Bank

20%

11%

15%

8%

5%

8%

Caja

11%

12%

24%

17%

13%

17%

Supplier

13%

8%

39%

19%

7%

13%

Pawn shop

13%

12%

9%

20%

19%

8%

1.1

1.1

1.0

1.1

1.0

1.2



Agriculture workers

Agriculture workers

Informal vehicles are also an important source of credit


Av. # of products per HH1

Informal Formal

1 Average number of credit vehicles in households that mentioned to have at least one credit

1.5

1.5

1.6

1.4

1.4

1.5

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Source of Income

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d w

ork

ers

Fo

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sal

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d w

ork

ers

En

trep

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En

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Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6


Family membersMonthly Cash Flows

Main Aspirations

▪ Mother (age 41)▪ Two sons (age

16,19)▪ Daughter (age 17)▪ Daughter’s Boyfriend

▪ Machine Operator

▪ Selling cookies

▪ See children’s success

▪ Buy own home

▪ Father (age 23)▪ Mother (age 24)▪ Son (age 3)

▪ Office assistant

▪ Money transfer from parents

▪ Buy land and build home

▪ Work as an accountant

▪ Father (age 49)▪ Two sons (age 25,

21)

▪ All three are informal salesmen

▪ Expand his business

▪ Buy own home

▪ Individual (age 34)▪ Lives with sister’s

family in their home

▪ Informal sales

▪ Find good, stable job

▪ Afford her own apartment

▪ Individual (age 23)▪ Lives with her 6

brothers, her sister’s family and her mother

▪ Restaurant cashier

▪ Buy her own car

▪ Save for unexpected expenses

▪ Father (age 42)▪ Mother▪ 5 daughters▪ Lives with extended

family

▪ Livestock owner

▪ Day laborer

▪ Pay for daughters’ higher education

▪ Establish a larger ranching business

Examples of household in the segments identified

2. What are the characteristics of each segment?

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Summary of segment comparisons


I. Cash flow structure II. Concerns

III. Aspirations

IV. Money management strategies

▪ Structure determined by income level and variability

▪ Many BoP segments are exposed to frequent cash shortfalls

▪ Health and education needs top concerns for all segments

▪ Meeting basic needs and managing income variability are key concerns for some segments

▪ All segments use both informal (and to some extent, formal) savings and credit vehicles to cope with cash shortfalls and to build lump sums

▪ Most segments aspire to better housing, quality education for their children, and improved income sources (e.g., better job, starting a business)


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Cash flow structure differs significantly across segments

Irregular

Frequency of Income

Regular

Clo

ser

Pro

xim

ity

to

bre

ak

ev

en

Fa

rth

er

Segment 3: Mid-income entrepreneurs

Segment 4: Low-income entrepreneursSegment 6: Agriculture workers

▪ Income and expenses fluctuate daily▪ Natural flow of business can lead to shortfalls

since there is investment in working capital▪ Overall, income exceeds expenses and can

save, mainly to invest back in the business

▪ Frequent, highly irregular income with steady daily expenses punctuated by larger outflows

▪ Significant risk of shortfalls (for agriculture workers, can be mitigated by crops)

▪ “Guardadito” at home used to smooth out flows


Segment 1: Mid-income formal salaried workers

Segment 2: Low-income formal salaried workersSegment 5: Informal salaried workers

▪ Regular (weekly or fortnightly) income with more frequent outflows

▪ No serious shortfalls – barring a serious emergency – and able to save every month

▪ Regular (weekly or fortnightly) income with daily outflows; income can be interrupted for informal workers

▪ Shortfalls are not uncommon, but households buckle down with “guardadito at home”

4%

% HHs in Mexico1

17%

18%

34%


1. In this analysis we only considered HHs with monthly income below 18k pesos, with an economically active head

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Key concerns for segments at the BoP

SOURCE: Team analysis, In-depth interviews

▪ Meeting education expenses, both seasonal (e.g., uniforms, school supplies, school fees) and lifecycle (higher education)

Key concerns Quotes

▪ Meeting daily and monthly expenses

▪ Meeting business related expenses

“Education is so expensive, we wonder if we should rather save that money for the kids”

“Without a college degree you are nothing… everyone notices you when you have a degree”

“What if I get sick? Who is going to take care of my kid?”

“When I got sick and couldn’t work, I had to turn to a pawnshop for help, it was embarrassing”

“Adults can go hungry, but kids can’t go without food”

“Very often I don’t have any money left by the end of the week”

▪ Illness


“My business is going to support me in my old age, so I must invest now so that I can stop worrying in the future!”

1. Formal lower income salaried workers, informal salaried workers, lower income entrepreneurs, agricultural workers,

All segments All segments

Lower income segments1


Entrepreneur segments

Entrepreneur segments

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Key aspirations for segments at the BoP

▪ Better housing

Key aspirations Quotes

▪ Fulfill basic needs

“With a better home, we would stop getting sick every time it gets cold or rains”

“One day my wife and I will move out of my parents house and live in our own”

“I wish I could move to a better house or at least finish mine: get better roofing, and a more comfortable bed”

▪ Investing (some households)

“I’ve always wanted to have my own business “

“I want to have a successful business with 20 sewing machines and plenty of employees”

“I wish I could find a better job that could give more stability to our lives”

“I wish my husband could get a better job so I could build a new room and buy more appliances”

▪ Better job (some households)

“I would be happy if I could provide better food and better clothing for my kids…”

“I wish we didn’t have to suffer so much and I could give my children better food, clothing and shelter; but for that to happen my husband would have to work non-stop”


All segments All segments



SOURCE: Team analysis, In-depth interviews

1. Formal lower income salaried workers, informal salaried workers, lower income entrepreneurs, agricultural workers,

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Qualitative research helped understand segments’ financial strategies

SOURCE: In-depth interviews, survey; team analysis

Wh

at d

o t

hey

do

wit

hsu

rplu

ses

of

mo

ney

?

QuoteSegments (>25% usage)

▪ “If I have some extra money, I buy fresh milk for my kids”▪ “When I can’t afford to go to the store, I have to go out to the field and look for

something to eat.”Spend it immediately Spend it immediately

▪ 6: Agriculture workers

▪ “I save money in advance to buy a cake for my daughter’s birthday”▪ “I save what I can to cover unexpected expenses when they happen”▪ “The “guardadito” I keep at home helps me meet monthly bills”

Save it at homeSave it at home▪ All

▪ “I save some money in Azteca, I don’t want to be a burden when I’m older”▪ “If I keep money in my house I’ll spend it in something I don’t really need”▪ “I was comfortable with my bank account, they gave me good service”

Save it in a bank or caja Save it in a bank or caja

▪ 1&2: Formal salaried▪ 3: M-I entrepreneurs▪ 5: Informal salaried

▪ “With 200 extra pesos I would buy merchandise for my business”▪ “I try to save when I can to buy a property and build my own house”▪ “You can never go wrong investing in the business, it’s my insurance policy”

Invest itInvest it▪ 3&4: M-I and L-I

entrepreneurs

Ho

w d

o t

hey

fac

e a

sho

rtfa

ll?

▪ “It’s free, I don’t have to pay any interest and they are willing to help me”▪ “My mother helps me out with small expenses”▪ “Keep it in the family, others shouldn’t know you need money”

Borrow from family or friends

Borrow from family or friends

▪ All

▪ “My payroll account gave me three loans when I needed them”▪ “Caja de ahorro loans offer the lowest interest rates”▪ “When my mother got sick, our family took a loan from a caja de ahorro”

Borrow from a bank or a cajaBorrow from a bank or a caja

▪ 1: M-I formal salaried▪ 3: M-I entrepreneurs▪ 6: Agriculture

workers

Borrow from my employer /supplier

Borrow from my employer /supplier

▪ 4: L-I entrepreneur▪ 6: Agriculture

workersSell an assetSell an asset

M-I = mid-income; L-I = low income

▪ All (except 4: L-I entrepreneur, 23% mentioned)

▪ “My employer provided me with a loan when my husband got sick”▪ “My employer offers me flexible repayments and charges zero interest”▪ “My supplier understands my business and is flexible about paying back”

▪ “If things get really bad, I’ll just sell off my merchandise, below cost if needed”▪ “Selling an animal is the fastest way to get money”▪ “We have no other choice, no one will give us credit”


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Total savings and credit balances for BoP segments are large in size, although informal vehicles make up the lion’s share

BoP total income & expendituresBillion pesos

Total BoP savings (annual)Billion pesos

Total BoP credit balance (annual)Billion pesos

1,623.3

Total segment income

% of national:

% of consumer credit from banks:

% of deposits in banks:

48 %

25.4 % 23.4 %

305.0330.8

In banks and cajas

Total segment deposits

Informal vehicles (home, tandas)

25.8

2.0 %

34.1 33.9

68.0

Total segment credit balance

From banks and cajas

Other vehicles (employer, supplier, pawn shops)

15.2 % 7.6 %7.6 %

GROSS ESTIMATE

SOURCE: CNBV, ENIGH, quantitative survey; team analysis

3. What is their potential relevance for financial institutions?

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BoP savings represent ~25% of the Mexican financial system’s deposits



Agriculture workers

Agriculture workers

Fo

rmal

sal

arie

d

wo

rker

s

Fo

rmal

sal

arie

d

wo

rker

s

Middle income

Middle income

Low income

Low income

En

terp

ren

eur

En

terp

ren

eur Middle

income

Middle income

Low income

Low income

SegmentSavingsBillion pesos

% of system’s deposits

Total savings

Share in formal vehicles%, Billion pesos

Share in informal vehicles%, Billion pesos

Total BOP $330.8$330.8 25%25% 71%71% 29%29%

$107.1

$71.5

$15.6

$34.6

$94.3

$7.7

8.0%

5.5%

1.2%

2.5%

7.3%

0.7%

SOURCE: CNBV, quantitative survey; team analysis

55%

83%

45%

17% 2.1

2.2

44%

49%

56%

51% 0.3

4.1

94%

63% 37% 8.1

8.96%

Banks Cajas

$26.9$26.9 84%84% 16%16%

74%

74%

26%

26%

13.4

32.5

78%

87%

22%

7.313%

90.2

90%

88%

Tandas

63.412%

98.2

Home

10%

$305$305


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Agriculture workers

Agriculture workers

Fo

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sal

arie

d

wo

rker

s

Fo

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sal

arie

d

wo

rker

sE

nte

rpre

neu

rE

nte

rpre

neu

r

SegmentCreditBillion pesos

% of consumer credit

Total consumer credit

Share in formal vehicles%, Billion pesos

Share in informal vehicles%, Billion pesos

Total BOP 68.068.0 15%15% 26%26% 74%74% 34.134.1 66%66% 4%4%12%12%

13.0

11.9

3.5

13.3

20.3

6.1

2.9%

2.7%

0.8%

3%

4.5%

1.4%

BoP loans represent ~15% of consumer credit from Mexican banks

SOURCE: CNBV, quantitative survey; team analysis

33.933.9

92%

7.619% 81%

2.28%

3.525% 75%

9.287%13%

60%

20%

7.4

Cajas

40%

80%

Banks

4.3

EmployerFamily Supplier

5.677%

5%

1%

4%

7.6

17%

1%

Pawn shop

26%68%

57%

32% 5.7

42% 1.31%

9%

0%

59% 0%

11.1

2.61%

0%

4%64%

11%22%

76% 24%

18%18%

Middle income

Middle income

Low income

Low income

Middle income

Middle income

Low income

Low income


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Several key opportunities were identifiedOpportunity Observed rationale

New

pro

du

cts

New

pro

du

cts

▪ Offer commitment savings plans

Savings

▪ Capture a share of employer credit

▪ ~25% of employees get credit from their employers every year. For employers, managing these credits is a problem. Financial institutions already have relationships with employers

▪ Capture a share of supplier credit

▪ ~30% of entrepreneurs have received credit from their suppliers in the last year. Managing these credits is challenging for suppliers

▪ For middle-income formal workers, and middle income entrepreneurs, expand consumer credit

▪ These segments represent 22% of national income and are demanding car loans

Credit

▪ Offer life insurance ▪ Over 40% of HHs interested in life or funeral insurance, while less than 10% have it today

Insurance

▪ Build a correspondent network for deposits

▪ 40-60% of consumers willing to make deposits and payments in convenience stores and supermarkets

▪ Pilot mobile banking with entrepreneurs

▪ More than 20% of entrepreneurs willing to make cell phone transactions if security issues are solved

New channels

4. What opportunities can be identified for financial institutions?

▪ Customers like having a savings discipline. About 40% of customers participate in tandas. Since customers are interested in leveraging their savings to obtain loans, saving accounts could be linked to a credit line

▪ Offer medical insurance linked to savings and credit plans

▪ Health emergencies commonly put financial stress on families. Over 40% of HHs reported having an unexpected medical expense last year

▪ 120-180

▪ 60-90

▪ 460-630

▪ 100-250

▪ 100-200

▪ 720-780

▪ 360-520

GROSS ESTIMATE

1 Assumptions used in back-up Total 1,920-2,6601,920-2,660

Total annual potential revenuesMillion USD

SOURCE: Survey, in-depth interviews, focus groups, Banxico, CNBV, websites; team analysis

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Agriculture workersAgriculture workers

Fo

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ala

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Fo

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ntr

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ren

eu

rE

ntr

ep

ren

eu

r

SegmentShare of potential revenues%

Total BOP 29%29% 34%34% 29%29% 8%8%

If financial institutions could capture BoP customers, they could generate potential revenues between ~2 and ~2.5 billion USD

17%

22%

7%

6%

46%

31% 41%

Savings InsuranceCredit Transactions

29%

34%

39%

9%

9%

26%30%

29% 22%

47%

35%

12%

7%26%

32%

32%

10%

Middle income

Middle income

Low incomeLow income

Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650


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1.6% 5.4%

BoP HHs GrowthMillion households

BoP Potential RevenueMillion USD

% Tot. Pop. 74%74%

In the future, BoP middle income segments are expected to have high growth and significant migration towards highest income segments

CAGR including migrating out of BoP

2.9%

2020

5,070-6,270

2011

1,920-2,650

3,100-4,300

% Current System Revenues from PFAs 9.4%9.4%

HHs that migrated out of the BoP

74%74% 13.1%13.1%

SOURCE: Survey, Banxico, CNBV,CONAPO,Global Insights, EIU, websites; team analysis

19.6

2.7

25.3

2020

22.6

2011

CAGR excluding migrating HHs

CAGR including migrating out of BoP

CAGR excluding migrating HHs

11.4%


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Requirements to capture opportunities identified at the BoP (1/3)

SOURCE: Websites; team analysis

Country Description

Philippines

Indonesia

Kenya

▪ CARD Bank supplements its 43 branches with 305 “other banking offices” (OBOs)

▪ Serves more than 500K poor rural clients with both credit and savings

▪ Complements the bank with a host of other businesses and non-profits aimed at serving the BoP

▪ BTPN launched in 2008, rapidly scaled network of 672 lean branches + 226 cash offices complement 63 “regular” branches

▪ Roving bank employees use portable electronic devices to conduct transactions at clients’ workplaces and homes

▪ Loan book to BoP doubled in 2010 to 20% of total for bank

▪ Equity Bank’s fleet of 54 mobile vans enable the bank to reach the most remote areas in Kenya for 1-2 days/ week

▪ The vans cover hundreds of villages and transactions take 3 minutes (rather than the average of 10 minutes at the branch)

5. What are the challenges related to capturing these opportunities?

Developing low-cost branch formats

Expanding the use of new channels

Increasing the penetration of financial education

Requirements to capture opportunities identified

▪ Rationale: revenue might increase 10-15%, but population served could more than double

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Sec

uri

ty i

n m

ob

ile

ban

kin

gS

ecu

rity

in

mo

bil

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anki

ng

Sec

uri

ty i

n c

orr

esp

on

den

tS

ecu

rity

in

co

rres

po

nd

ent

▪ PIN number for transactions▪ Protection against security

breaches (“hackers”)▪ Account suspension through

remote service

▪ Lean customer service (print-out balance, remote help-desk)

▪ Service based on the banking platform of a large, formal institution

▪ Service backed by large, formal institution

▪ Secure ID and signature for shop owners

▪ Tickets or receipts

▪ Lean customer service (print-out balance, remote help-desk)

SOURCE: In-depth interviews, focus groups; team analysis

NOTE: In addition to security issues, there are a number of other business model issues that banks and others will need to address; here we only touch on security as it emerged as the number one barrier from potential clients' perspectives

BoPConcerns

BoPSuggestions

Theft/Privacy protection

Theft/Privacy protection

Reliability of system


Fraud protection

Fraud protection



“If someone steals my phone or hacks my account he can take all my money and use my information!”

“What if I make a transaction and the money disappears, who will I talk to in order to get my money back?”

“The storeowner could close shop any day and take all my money with him.”

“One time I paid my electricity bill through a store, and the company never got the payment.”





BoP population willing to adopt new channels if security issues are resolved


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Evidence shows that concerns regarding mobile banking can be overcome

SOURCE: CGAP, M-Pesa website, team analysis

In the Philippines and Africa customers were reluctant at first, but real time transaction checking showed them transactions are safe to gain their trust

Second, understand the financial profile ofpotential customers and offer the “killer app” they really need. Offering attractive products produces multiple opportunities for clients to test the product and check its security features

Third, build out a dense network of agents. For mobile money to be extra convenient, it must offer easy ways to convert cash to electronic value and back again; this requires an ubiquitous carpet of touch points

First, target the low hanging fruit and invest in marketing. Targeting influential consumers who are likely to be early adopters and offering incentives to try the service must be part of the marketing mix.

Fourth, treat customers well when problems do occur. If the system goes down or if agents have liquidity problems, go the extra mile to ensure that no customer ever loses any money to the system

Growth of M-Pesa customers and agents

Apr

10

Jan

10

Oct

09

Jul 0

9

Apr

09

Jan

09

10

Jul 0

8

Apr

08

Jan

08

Oct

07

Jul 0

7

Apr

07

Agents

30

25

20

15

5

0

Customers

15,000

10,000

Oct

08

5,000

0

Apr

11

Jan

11

Oct

10

Jul 1

0

Thousands Customers Agents

Strategies


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24

Mid-income formal salaried workers






Other countries have actively developed targeted efforts to expand financial education

Academic studies have shown a positive impact of financial education in the use of financial services

▪ Individuals that have been exposed to financial education programs:– Have a better credit score (Staten 2002)– Save more (Bernheim 2003)

▪ Hours of financial education received are correlated with observed increase in savings (Schereiner 2003)

In Mexico, despite recent consumer protection efforts by CONDUSEF, the majority of the unbanked population still believes they lack information about financial products*

How would you rate the clarity and sufficiency of information about financial products that are available to you? (1-5 scale, 5 is very clear and sufficient)

322228

711

1 2 3 4 5

Source: GAUSSC, Encuesta nacional sobre penetración y conocimientos de servicios financieros 2008, Seminario de Educación financiera 2007, presentación del subsecretario Werner


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Implications for relevant players


Financial institutions

Regulators

▪ Expand product offering to serve BoP customers

▪ Develop new formats, leveraging new channels, to make services to BoP self sustainable

▪ Facilitate the development of new formats (e.g., develop ad-hoc regulations about branch requirements)

▪ Define scheme to ensure consumer protection in correspondent and mobile banking transactions, while minimizing cost impact

▪ Develop programs for financial literacy

Individually, relevant players should… Collectively, relevant players could…

Co- invest in common infrastructure for financial inclusion

▪ Banks and government have invested in common infrastructure to process payments (e.g., Procesar for contributions to pension funds)

▪ Going forward, financial institutions and government agencies could invest to:– Develop reliable

correspondent networks, beyond large established chains (e.g., mom and pop stores, lottery posts)

– Create infrastructure to securely manage mobile transactions

– Incorporate individual efforts around financial literacy into an articulated strategy that optimized the use of total resources invested

IDEAS FOR DISCUSSION


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26

Contents




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27

Mid-income formal salaried workers have certainty of cash flow and the opportunity to save and better prepare for the future

I’m Maribel (age 41) and I live with my two sons (age 16 and 19), pregnant daughter (age 17) and her boyfriend

(age 19)

▪ We live in a tiny one room apartment in Chimalhuacán, Estado de Mexico, while I save up to build our own house. Our house has electricity, running water and natural gas We also own a refrigerator, cell phones, 2 TVs and a washing machine

▪ I work as an machine operator for 9 hours a day and even manage to bake and sell cookies on the side!

▪ I’m worried about giving my family a stable home, being independent in my old age, and keeping my children safe from street crime

I’m Maribel (age 41) and I live with my two sons (age 16 and 19), pregnant daughter (age 17) and her boyfriend

(age 19)

▪ We live in a tiny one room apartment in Chimalhuacán, Estado de Mexico, while I save up to build our own house. Our house has electricity, running water and natural gas We also own a refrigerator, cell phones, 2 TVs and a washing machine

▪ I work as an machine operator for 9 hours a day and even manage to bake and sell cookies on the side!

▪ I’m worried about giving my family a stable home, being independent in my old age, and keeping my children safe from street crime


SOURCE: In-depth interview

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28

Low-income formal salaried workers have access to many services and commodities, but must work hard to afford them

We are Hector (age 23), Janet (age 24) and Jorge (age 3)

▪ We live in a room outside Janet’s mother’s home in a working class neighborhood in Mexico City

▪ Our house has electricity, water, gas and a telephone line. We also own two cell phones, a TV and a computer

▪ I work as an office assistant for 5 hours a day and go to the gym, while Janet stays at home and enjoys playing with Jorge

▪ We are worried about our daily expenses, which we meet thanks to my parents. We would like to move out and buy our own house some day

We are Hector (age 23), Janet (age 24) and Jorge (age 3)

▪ We live in a room outside Janet’s mother’s home in a working class neighborhood in Mexico City

▪ Our house has electricity, water, gas and a telephone line. We also own two cell phones, a TV and a computer

▪ I work as an office assistant for 5 hours a day and go to the gym, while Janet stays at home and enjoys playing with Jorge

▪ We are worried about our daily expenses, which we meet thanks to my parents. We would like to move out and buy our own house some day

Low-income formal salaried workers


|

29

Mid-income informal entrepreneurs have been relatively successful in their business and focus their resources on improving their opportunities

We’re Raul (age 49), Yesel (age 25) and Yael (age 21)

▪ We live in Mexico City in a 3 bedroom apartment. It has a living room, a dining room, a kitchen, and a bathroom and roof access

▪ We have electricity, running water, natural gas, cell phones and internet access. Additionally, we own a refrigerator, a TV, a truck and a computer

▪ We all work in informal sales, but I have a small workshop and warehouse that keeps my merchandise safe and helps me sell more

▪ Though my income is uncertain at times, I feel working in sales gives me more opportunities and I want to own a big business some day

We’re Raul (age 49), Yesel (age 25) and Yael (age 21)

▪ We live in Mexico City in a 3 bedroom apartment. It has a living room, a dining room, a kitchen, and a bathroom and roof access

▪ We have electricity, running water, natural gas, cell phones and internet access. Additionally, we own a refrigerator, a TV, a truck and a computer

▪ We all work in informal sales, but I have a small workshop and warehouse that keeps my merchandise safe and helps me sell more

▪ Though my income is uncertain at times, I feel working in sales gives me more opportunities and I want to own a big business some day

Mid-income informal entrepreneurs


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30 30

Daily survival is a strong concern for low-income informal entrepreneurs, though they also worry about their future welfare

Low-income informal entrepreneurs


I’m Maria del Socorro (age 34) and I live in my sister’s home

▪ We live in Mexico City in a fifth floor apartment with 2 bedrooms, a living room, a kitchen, a bathroom and roof access

▪ Our house has electricity, running water, and natural gas. I have a prepaid cell phone. The house also has a TV and stove

▪ I buy and sell novelty items on the street, saving some money from my sales every day to purchase things to sell the next day

▪ I want to get a stable job; having only completed elementary school it’s hard to get one…I am worried about my old age and how I will survive then

I’m Maria del Socorro (age 34) and I live in my sister’s home

▪ We live in Mexico City in a fifth floor apartment with 2 bedrooms, a living room, a kitchen, a bathroom and roof access

▪ Our house has electricity, running water, and natural gas. I have a prepaid cell phone. The house also has a TV and stove

▪ I buy and sell novelty items on the street, saving some money from my sales every day to purchase things to sell the next day

▪ I want to get a stable job; having only completed elementary school it’s hard to get one…I am worried about my old age and how I will survive then

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31

Although informal salaried workers have a wide range of income levels, they share the same behaviors, needs and concerns



I’m Patricia (age 23) and I live with my 6 siblings and my mother

▪ We live in the outskirts of Silao, Guanajuato in a house with 3 bedrooms, a bathroom and a multi-use room. Our sister and her husband live next door

▪ Our house has electricity, running water, cell phones and natural gas. We also own a TV and a stove

▪ I work as a cashier in a small restaurant. I give 40% of my money to my mother and she pays some of my and my younger sisters’ expenses

▪ Though I don’t worry much, I am concerned about my family’s health and wish I could save some money for emergencies

I’m Patricia (age 23) and I live with my 6 siblings and my mother

▪ We live in the outskirts of Silao, Guanajuato in a house with 3 bedrooms, a bathroom and a multi-use room. Our sister and her husband live next door

▪ Our house has electricity, running water, cell phones and natural gas. We also own a TV and a stove

▪ I work as a cashier in a small restaurant. I give 40% of my money to my mother and she pays some of my and my younger sisters’ expenses

▪ Though I don’t worry much, I am concerned about my family’s health and wish I could save some money for emergencies

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32

Families continually risk facing shortfalls and wish their children could have a better life

I’m Arturo (age 42), I live with my wife and 5 daughters

▪ I live in Calpulalpan, Tlaxcala in a home I share with my mother, grandmother and my brother’s family. My family lives in one kitchen/dining room and a large bedroom where we all sleep

▪ We have electricity, running water, telephone, a cell phone and liquid petroleum gas. We own a refrigerator, stove and an old truck

▪ I want to work full time fattening and selling sheep, but while I grow my herd I scrape by as a day laborer, investing what I can to buy more livestock

▪ I want my daughters to have a better education, and though my entire herd was stolen, I’ll work hard to have a profitable business with plenty of cattle

I’m Arturo (age 42), I live with my wife and 5 daughters

▪ I live in Calpulalpan, Tlaxcala in a home I share with my mother, grandmother and my brother’s family. My family lives in one kitchen/dining room and a large bedroom where we all sleep

▪ We have electricity, running water, telephone, a cell phone and liquid petroleum gas. We own a refrigerator, stove and an old truck

▪ I want to work full time fattening and selling sheep, but while I grow my herd I scrape by as a day laborer, investing what I can to buy more livestock

▪ I want my daughters to have a better education, and though my entire herd was stolen, I’ll work hard to have a profitable business with plenty of cattle

Agriculture workers

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33

Contents




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34

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations




▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales


▪ Afford her own appartment




▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 1: Mid-income formal salaried workers Mid-income formal salaried workers

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35

Segment 1: Mid-income formal salaried workersDescription

Key characteristics

Cash flows

Aspirations for the future

Product use

1

2

3

4

0. Executive summary

Beh

avio

rs a

nd

pre

fere

nce

s

Perceptions of players and channels

5

SOURCE: Survey, in-depth interviews; team analysis

▪ 4.5 million HHs, 16% of all HHs in Mexico, with between 105K and 220K MXP annual income▪ ~85% of this segment is located in urban areas with access to utilities and financial services▪ Over 70% of HH heads have completed at least junior high-school▪ The main occupations of these families are related to the public and education sectors and the food industry

▪ Income is received regularly, either every week or fortnight ▪ Most of it is spent on a weekly or monthly basis, mainly on transportation and food▪ People manage to save money each week to pay for monthly expenses, such as utilities and rent, and still have

money left over for a “guardadito” or long term savings▪ Less than 50% of households report shortfalls, which are less severe due to higher savings and income levels

▪ Even though 46% of HHs have a payroll account, they prefer informal means to save for planned expenses. ~60% still keep savings at home while ~40% use tandas for specific goals (e.g., commitment savings) or trust in their family and friends vs. ~30% use a bank account

▪ 46% of HHs rely on friends and family to cover shortfalls, with another 26% using employer loans and 20% bank loans. The segment prefers flexibility, low interest rates, and fast processes to get their loan

▪ All HHs have medical coverage due to Social Security, only ~26% have additional coverage. People are interested in life insurance, and almost 40% have it

▪ Long-term aspirations are focused on higher education for their children, and saving up for retirement▪ Mid-term aspirations are related to housing, either buying a house or making improvements▪ People also want to advance in their careers and have better income, in order to achieve their other goals

▪ Shopping preferences prioritize quality and convenience; first choices are supermarkets, convenience stores and “tianguis” markets

▪ People have knowledge of banks through experience; all HHs have had at least one product. They are interested in cajas de ahorro but less familiar with them

▪ More than 70% are interested in payments through correspondents and one third would open a savings account in one. Their interest in mobile banking is low, though one of the highest in the study, because they see it as an unsafe or unreliable choice

▪ Financial institutions have the opportunity to capture the equivalent of ~8% of bank deposits and ~1% of consumer credit in Mexico that is currently held in informal channels by this segment

▪ To capture financial assets currently in informal channels, banks can offer a diverse portfolio of products, such as: commitment savings plans with and without linked credit, expanded consumer credit portfolio, employee credit services, life insurance and a correspondent network for deposits

Opportunities6


|

36

Mid-income formal salaried workers represent ~17% of Mexico’s HHs, live in urban areas, have access to education degrees and work in services

10

5

EAPHouseholds

17%

xx % of MexicoMillions

Segment size

3,106

713405285

>100 K15-100 K2.5-15 K<2.5 K

Rural Semi-urban Urban

Segment distributionHH, thousands

Inhabitants

~85% of the total HHs of this segment live in urban areas, with access to all utilities and formal financial services

28114

28

444

Unfinished Unfinished More than High school

FinishedFinishedUnfinishedFinished

Education of head of familyHH, %

Most heads of HHs have finished high school and, at least started studying for some sort of degree

SOURCE: Surveys, ENIGH 2008; team analysis

Elementary Junior HighSchool High

20%

1. Key characteristics

67101214

HousekeepingSalesCook/WaiterEducation services

Public sector

Occupation of head of familyEAP, %

This segment’s main occupations are related to services, either in the public or education sectors or in the food industry

Top 5Jobs


|

37

Households in this segment are located in middle class neighborhoods with access to all utilities and more expensive house appliances

SOURCE: Surveys, in-depth interviews; team analysis

Household Does your household have a…

Computer?

Car?

▪ Housing:– Usually in low-middle or middle class

neighborhoods– Apartment or home with kitchen, bathroom,

living room, dining room and several bedrooms, depending on size of family

– All have direct access to basic utilities (water, gas, electricity)

– Some pay for internet, telephone or Cable TV services

▪ Family– The average age of the head of household is

43 years old– Typically a family unit has

▫ 2 adults▫ 1 (or 2) underage members

67% 33%

48% 52%

78% 22%

87% 13%

No

Yes

Cell phone?

▪ Significantly higher than in other segments, that perceive this as a luxury or don’t have access to it

▪ Most of the segment rely on PCs to access internet services; just 30% of HHs have data services on their cells

▪ Main transportation means for this segment

▪ Purchasing a car is a shared aspiration across the segment


Telephone?

▪ 80% of owners have a prepaid cell phone

▪ 20% have a cell phone plan


|

38

Most households receive weekly incomes and have the opportunity to save regularly; sporadically they face shortfalls

2. Cash flows


Main income

▪ Weekly salary (54%)– Payment every week– $2,880 MXP

▪ Fortnight salary (46%)– Payment every 2 weeks – $6,270 MXP

Recurrent expenses

▪ Daily– Food

– Transport

▪ Monthly– Utilities

– Education

▪ Annual– Holidays and birthdays $4,000-$10,000

– Taxes, insurance or credit payments Fortnight cash flow

AmountAv. MXP

Shortfalls% Said Yes

SunMon Tue WedThu FriSatFriThuWedTueMonSunSatFri

Weekly income Income depleted by monthly bills and weekly groceries

Manages to avoid serious

shortfalls

$136

$88

46%

49%

$1,108

$1,900

49%

50%

Avg. Monthly Expense$5,970 MXP


|

39 SOURCE: Survey, in-depth interviews; team analysis

3. Product use

Even though this segment is more attractive to financial players due to higher levels and certainty of income, penetration is still low

Sa

vin

gs

Cre

dit

Ins

ura

nc

e

Life 37%

Auto 11%

Home 9%

Medical 26%

Consumer 24%

Mortgage 17%

Auto 4%

Credit card 22%

In a caja 22%

Other bankaccount

33%

Payrollaccount

46%

Penetration of formal products Comments

▪ Payroll accounts have the highest penetration of saving products due to the nature of their jobs

▪ People would rather save in cajas than through other formal savings means

▪ Consumer credit is both the most used and the preferred type of credit among people in the segment

▪ People would also like to be able to get a loan for a car▪ Along with mid-income entrepreneurs, this segment has one

of the highest credit card penetration

▪ Highest penetration in life insurance; the formality of their jobs and benefits from their employers sometimes give them access to this type of insurance

▪ People in the segment value the benefits of life insurance, making it the insurance of choice

▪ 16% of car owners have auto insurance, but only 13% are interested

“Cajas are great to save for future plans; you know when you’ll get your money and they pay interest”

“Credit cards can be very useful, but they can also become a temptation… you need to plan your expenses well”

“It would be great to be able to have some kind of life insurance in case something happens to me or my husband; I wouldn’t want my kid to have an additional concern if we died”


|

40

People try to save, using different informal means, at least once a week to cover unexpected events and pay for monthly expenses


1 Mode of respondents who saved this way2 Average amount saved last time by respondents who saved in the frequency indicated in “How often did you save?” column3 Considers if the HH has either payroll or other types of current and saving accounts

3. Product use

In the last year, did your HH save money?

15

85

No

Yes

Percentage

22%

63%

Saved athome

39%

Saved in a“caja”

Saved in a“tanda”

61%

17%Bought assets

20%

Saved in abank3

Invested in the fam. business

How did you save?% of respondents

What did you save this money for?Top 2 reasons

How much did you save each time?2

How often did you save?1

750 MXP

600 MXP

2,450 MXP

1,500 MXP

200 MXP

500 MXP

Once a week

Less than once a year

Once a month

Once a month

Varies: once a week, fortnight or month

Once a week

▪ For an unexpected event▪ For monthly expenses

▪ For an unexpected event

▪ For a future investment (e.g., education)



▪ For an unexpected event▪ For a future investment

(e.g., education)



|

41

People already use their preferred savings options; safety and convenience are the main drivers for their preferences

Top 3 preferred types of savings

Save in a "tanda" 21%

Save in a bank 22%

Save at home 23%


Why is this option preferred? (% of respondents)▪ I feel my money is safe (68%)▪ It’s the most convenient option (21%)

▪ It helps me keep my money safe (41%)▪ It helps me make more money (28%)▪ It’s a very convenient option (17%)

▪ It’s a very convenient option (38%)▪ It’s a safe way to save money (33%)▪ It forces me to save money and I like that (17%)

3. Product use Mid-income formal salaried workers

|

42

After asking family or friends, loans from employers and banks seem to be popular alternatives to obtain extra money at least once a year

SOURCE: Surveys; team analysis

1 Average amount asked for the last time they received a loan or sold an asset2 More frequent number of times this vehicle was used to face shortfalls in the last year

3. Product use

In the last year, did your HH use some type of credit?

24

76

No

Yes

Percentage

13%A supplier

13%Pawn shop

Sell an asset 13%

A "caja" 11%

A bank 20%

Your employer 26%

Family & friends 46%

Ask

ed

fo

r a

loa

n f

rom

…

Top 5 sources for obtaining funds Amount1

Av. K MXPFrequency# of times used2

~2.1

~3.3

~6.0

~1.6

~13.5

~1.6

~4.9

▪ 3 or more times in the last year

▪ Once in the last year


▪ One to three times in a year

▪ One to three times in a year




|

43

Credit usage and preferences are aligned in this segment; flexibility, cost and time to get the money are priority characteristics

Top 3 preferred means to face shortfalls

Credit from bank 14%

Loan from employer 19%

Loan from family 30%


Why is this option preferred?

▪ Payments are very flexible (52%)▪ It’s the least expensive option available (21%)▪ It’s the fastest way to get money when in need

(12%)

▪ It’s a flexible way to get money (46%)▪ It’s a fast way to get money when you need it

(23%)▪ It charges no or low interest rates (15%)

▪ It’s a safe and reliable option (40%)▪ It’s the option that lends you the most (25%)▪ It gives some flexibility in payments (25%)


|

44

Although insurance plays a part in easing medical expenses, this and other emergencies are paid with savings or loans from family and friends


Has the HH faced an unplanned event recently? How did most people cope with these events?

Accident 11%

HelpFriends /Family

13%

Illness 22%

Top 3 unplanned events Why did you choose this option?

What did you do to pay for it?

▪ 100% used their personal savings

▪ 30% used Insurance

▪ 30% asked friends or family for a loan

▪ “It’s my only choice”

▪ “I don’t like owing anyone money”



▪ “It’s my only/cheapest choice”

▪ “It gives us flexibility and ease of payment”

AverageExpense

$ 4,900 MXP

$ 2,170 MXP

$ 26,800 MXP


▪ “It gives us flexibility and ease of payment”

Insurance is mentioned as a way to face accidents by only 20%, and in every case people regard it as a last choice


|

45

People in this segment believe that education, self improvement and independence are keys to a better life

4. Aspirations for the future

SOURCE: In-depth interviews; team analysis

“I want my family to become independent and strong, with our own home; I don’t want to be too much of a burden for my children when I am old”

“I wish my husband could study more so he could earn a higher salary and better working hours”

“I want to get my job back so I can give my daughters a better life… give them the opportunity to enroll in ballet or swimming classes”


|

46

Households plan to use their savings for improving their homes, buying items for the household, and starting a business



Plans for the future

How much are you planning to spend?Average, MXPIs your household planning…

Start or growown business

26%

Buy home appliance

33%

Buy a car 37%

Home improvement

44% $ 10,950 MXP

$ 48,700 MXP

$ 6,890 MXP

$ 23,670 MXP

▪ 55% of HHs plan to pay fully with savings

▪ 40% plan to pay half with credit



▪ 67% of HHs plan to pay for this fully with savings


▪ 34% of Households plan to pay more than half with credit


How are they planning to cover this expense?


|

47

This segment is most concerned about improving their opportunities



Low income

Retirement/ Long term welfare

▪ Job positions with high rotation and the demand for housing and automobiles, make finding a better primary income fundamental to some

Affording Higher Education

▪ Since 50% of head of HHs have high school or a form of higher education, they feel a parental duty to give the same opportunity to their children

▪ High education and the capacity to save part of their income gives HHs the opportunity to plan their long term future

“All I want is to get my higher paying job back, so I can finish paying my mortgage”

▪ Despite being formally employed, 26% want to start a business, others want to find better jobs

▪ Education is an significant expense for 23% of segment, and 50% of them face shortfalls

▪ Long term investment is mentioned as a reason for saving via various channels

Why is your family concerned about this? Key insightsMain concerns


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48

Since this is an urban segment, they can easily walk or drive to both conventional and alternate transaction points

59%

63%

70%

78%

85%

54%

30%

26%

24%

20%

26%

13%

Cajasde Ahorro 17%

2%

Mom & pops2%

Conveniencestore

2%

Supermarket 7%

ATM 11%

Bank 11%


Time it takes from home to get to a… How I get there…

▪ They go to banks mostly to withdraw their payments; this is how they are familiar with banks

▪ They use them for savings and occasionally for getting loans

5.Perception of players and channels

▪ Supermarkets are used to buy HH supplies because of their low prices

▪ Convenience stores are used for “urgent” needs due to their proximity

▪ “Tianguis” is where people purchase produce due to quality and freshness

▪ Cajas are relatively farther away than banks; however, they are still the preferred savings option

< 15 min.

15-30 min.

30-60 min.

> 60 min

I use/like them because…


|

49

Individuals are quite knowledgeable about banks, with player-specific opinions based on past experiences


The cheapest option, with low interest rates on loans and useful commitment

savings products

“I don’t know much about cajas, but I might like their

products if I knew more”


“I don’t think they’re trustworthy, I would only use

them to make purchases”

“Banorte has quick service and Banamex has good products; employees of HSBC and Bancomer are

less competent

“I like Bancomer and Banco Azteca and keep my savings and payroll

there, but I’m sad they didn’t give me a mortgage when I needed it”

“Banamex was not responsive in the credit card crisis and Bancomer

made me pay 2 or 3 times the value of a loan, but Banorte and

Santander are reliable”

“I’ve never used a pawn shop, but they’re good as an inexpensive last resort”


|

50

HHs are interested in using correspondents, especially big brand stores, for payments and deposits; they seem reluctant to use cell phones

Would you be interested in using your cell phone as a transaction point?

A. To open a savings account

B. To make payments or deposits

A. To make payments or deposits


Preferred channels for payments or deposits

Yes

No


67%33%

29%71%

85

15

Mom &Pop

17%

GasStations

22%

ConvenienceStore

50%

Supermarket

50%

▪ Those interested in correspondent banking preferred supermarkets for their ease of use (26%) and convenience stores for their proximity (30%)

▪ The majority of detractors considered they were not safe or reliable (57%-70%), while others said they were simply not interested in the service (13%-17%)

Would you be interested in using correspondents as transaction points?

▪ Cell phone banking was considered attractive for its comfort (57%)▪ Most detractors believed it was not safe or reliable (64%), while others

were simply not interested (18%) or felt like the option was just too difficult or expensive for them (13%)

▪ Only 5% indicated they had no access to a cell phone


|

51

Mid-income formal salaried workers represent ~20% of Mexico’s income

Total segment income Billion pesos

Total segment average savings (annual)Billion pesos

Total segment average credit balance (annual)Billion pesos


623.3

% of national:



18 %

8.3 % 7.6 %

98.2107.1


In banks and cajas

8.9


0.7 %

7.45.6

13.0

Other Vehicles1



2.9 % 1.3 %1.6 %

GROSS ESTIMATE

SOURCE: ENIGH, survey; team analysis

6. Opportunities

1 Includes Employers, Suppliers, Pawn Shops and Family/friends


|

52

There are many opportunities to increase financial penetrationOpportunity Observed rationale

▪ Offer commitment savings plans ▪ Individuals like having a savings discipline. Just under 40% of HHs have participated in tandas in the last year

▪ Capture a share of employer credit ▪ 26% of HHs get credit from their employers every year. For employers, managing these credits is a problem. Financial institutions already have relationships with employers

▪ Offer commitment savings plans linked to credit

▪ Individuals are interested in leveraging their savings to obtain consumer credit and home improvement credit

▪ Expand consumer credit ▪ This segment represents 18% of national income and are demanding mortgages, credit cards and car loans

▪ Offer life insurance ▪ Though 37% of HHs have life insurance, an additional 28% are interested in acquiring this service


▪ Over 70% of the segment willing to make deposits and payments in convenience stores and supermarkets, and are nearby these transaction points

6. Opportunities

Ne

w p

rod

uc

tsN

ew

pro

du

cts

Savings

Credit

Insurance

New channels



|

53




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

ntr

ep

ren

eu

rE

ntr

ep

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%

Financial institutions could capture ~560-760 M USD from this segment

17%

22%

7%

6%

Savings Credit Insurance Transactions

29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650



|

54 54


Maribel and her family

Example of mid-income formal salaried workers HH profile

|

55 55

Maribel lives in the outskirts of Mexico City in the State of Mexico, with her children and her daughter’s boyfriend (1/4)

SOURCE: In-depth interview; Team analysis

Who are they?

▪ They are a family of 5: Maribel, 2 sons (16 and 9 year old), 1 pregnant daughter and her boyfriend Armando (17 and 19 year old, respectively)

▪ Maribel is the head of the household and she works as a machine operator in a factory▪ She has a small business; she sells cookies▪ She is graduated from a commercial school

▪ They live in Chimalhuacán county, Los Tejedores neighborhood, in the State of Mexico ▪ They rent a small apartment (until they can buy a piece of land and build a house). The living room is

divided in two areas: the whole family sleeps together in one of the halves. There is only one bathroom.

▪ The apartment has electricity, drinking water, and gas▪ They have one refrigerator, a stove, three TV sets (only two of them work), and a washing

machine

▪ There is crucial lack of security; she was robed three times in the public transportation, and her son was mugged once. She wants to be sure their children do not fall prey to thieves (“rateros”)

▪ Obtaining a loan to buy her own house (nobody give her one)

▪ To be able to cover the back-to-school expenses (August), especially her little one’s needs

▪ Obtain a retirement plan

▪ For her children to be happy, successful students▪ To have a house of her own in which to live▪ To consolidate her family, with the upcoming arrival of

her grandson, she wishes the new family can live alone▪ Not to be too heavy a burden for her children when she

gets old and unable to work anymore.

“This is my most practical view of the perfect world, I do not want to give the impression that I am asking too

much”

Where do they live?

What are their concerns? What are their aspirations?


|

56 56

One day in Maribel’s family life

All family members have activities that keep them busy; Maribel works non-stop the whole day, either at home or at the factory (2/4)

▪ During the week, the days are almost the same for Maribel’s family

▪ At night, Maribel wants to have some family time for the children to do their homework

▪ Every now and then, the family does something special for dinner on Saturdays; however Sundays are devoted to housekeeping; shopping, cleaning, other things related, to rest, etc.



Maribel Armando Older children Younger child

Wakes up and gets ready

Has breakfast

Commuting

Nig

htA

fter

noon

Mor

ning

Wakes up andprepares lunch

Supervise homeworkand has dinner

Sleeps Sleeps

Commuting

Goes to work

Commuting

Cleans the house andpicks up younger child

Serves dinner to younger child

Sleeps

Commuting

Goes to work

Commuting

Free time anddinner

Go to school

Do homework and have dinner

Sleep

Sleeps

Free time

Lunch

Goes to school

Dinner

Does homework

Sleeps

Sleep

Wake up, have breakfastClean the house, Take care of the dog

Give breakfast and foodto the little child

Commuting

|

57 57

Monthly cash-flows

The family’s income is enough for “regular” expenses, but to afford the significant seasonal and unexpected expenses they use the credit card (3/4)

Other incomes: ▪ For her work at the factory, she receives a bonus based on the factory’s profit each May, which varies. She also receives a legal

bonus in December. These add up to ~$10,000 more per year

▪ Annually, their most important expenses are concentrated on:– August, back-to-school expenses– represent $5,500

MXP to $6,000 MXP for both children– January, gifts for the children (~$1,500 MXP)– May, Mother’s Day (~$500 MXP)

27 28261 2524232221201918171615141312111098765432


Other important expenses :▪ On a monthly basis they have to pay:

– Rent: $700 MXP– School: $375 MXP– Gas: $400 MXP– Electricity: $200 MXP– Credit cards: $400 MXP

Recurring income :▪ Maribel and Armando receive a weekly pay; each Friday they

receive $1,250 MXP and $1,000 MXP respectively▪ The children’s father pays $1,000 MXP every two weeks▪ $400 MXP earned from the business selling cookies– she

saves the profit at Banco Azteca

Recurring expenses:▪ Food and household items : ~$650 MXP▪ Commuting: $500 MXP▪ Cookies expenses: $300 MXP▪ Additional expenses (includes cell phones and school): $50

MXP

They save extra money monthly for the August back-to-school expenses and for unexpected events. They are also saving to buy a piece of land and for their retirement


|

58 58

Maribel’s family has monthly and long-term planning horizons (4/4)

Planning:▪ Their horizons are monthly and long-term:

– She carefully plans for the monthly expenses and saves for school expenses and holiday expenses; she knows exactly how much they spend (she used her calculator during the interview)

– She is saving to purchase a piece of land, which will cost $200,000 MXP, and then build a house (she has already saved $40,000 MXP)

– She really cares about her retirement, she wants to be prepared for the future

“Shortfalls”▪ When they do not have enough money:

– First, they use their savings, second the credit cards, and the last option is to ask for a loan from a bank– She will not pawn anything, and she does not like the idea of borrowing money from her friends, neighbors or relatives

because “ it’s too big of a commitment”

Perception and usage of financial services▪ Banks: she knows three banks:

– Bancomer: she has her payroll account there and has taken three loans (total of $24,500 MXP). She likes the bank customer service, but she is disappointed due to the fact that she asked for a loan to buy the lot, and the bank denied it.

– Banco Azteca: she uses it for her “own” funds (e.g., payments made by the children’s father, income from the cookie business). She uses this bank only to have the money in a “safe” place, it is not for “saving” (saving account), she does not receive any interest. It is only a 5-minute walk, and it opens from 9 am to 9 pm (“it is available”). She feels comfortable there.

– Banamex: she does not have much information about it, but would like to know more regarding the bank’s operation▪ Pawn shop: she mistrust them very much. “I will never go there, except to purchase something”

Channel preferences▪ She prefers to do the daily shopping at self-service stores because she is able to choose what she likes and feels comfortable. She

goes to the shopping mall for other kind of shopping, it is a 10-minute walk ▪ She is willing to do transactions with non-bank correspondents but she is afraid of security problems at small stores. She would

like more information about cell phone services, especially the fees.

Behaviors

SOURCE: In-depth interview; Team Analysis


|

59

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations




▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales


▪ Afford her own appartment




▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 2: Low-income formal salaried workers Low-income formal salaried workers

|

60

Segment 2: Low-income formal salaried workersDescription

Key characteristics

Cash flows


Product use

1

2

3

4


Beh

avio

rs a

nd

pre

fere

nce

s


5


▪ 3.8 million HHs, 16% of all HHs in Mexico, with less than 105K MXP annual income▪ ~75% of this segment is located in urban areas with access to utilities and financial services; over 50% of HH

heads completed at least junior high-school▪ Main occupations of these HHs are related the food industry or to clerical positions (assistants, office staff, etc.)

▪ Income is received regularly, either every week or fortnight ▪ Most of it is spent on a daily or weekly basis, mainly on transportation and food▪ People try to save small amounts of money each week to pay for monthly expenses, such as utilities and rent,

and some seasonal expenditures such as school fees▪ However, families consistently experience shortfalls at the end of the month, increasing financial pressure and

forcing them to borrow

▪ Even though ~50% of HHs have a payroll account, they prefer informal means to save for planned expenses. ~50% still keep savings at home or use a tanda (to truly commit and avoid the temptation of spending the money) vs. ~17% with an account in a caja de ahorro

▪ People rely in friends and family to cover shortfalls; 54% asked family or friends for a loan last year and 31% preferred this to any other loan type for its flexibility, reliability and low or no interest charges

▪ Nearly all HHs have medical coverage due to Social Security, only ~28% have additional medical insurance. People are interested in life insurance, but only 17% have it

▪ Long-term aspirations are about seeing their children’s lifestyle improve through better education; all would like their kids to get some sort of degree

▪ Mid-term aspirations are related to housing, either buying a house or making improvements▪ People are constantly concerned about shortfalls; not being able to cover their daily needs, education expenses

or face illnesses and emergencies

▪ Shopping preferences center on price and quality; first choices are mom and pop stores and retail chains, such as Bodega Aurrera or Wal-Mart

▪ People have knowledge of banks through experience; most HHs have had at least one product. However, contact is limited and perceptions mixed, tend to be player related

▪ They are interested in correspondents, but not in mobile banking since cell phones are seen as unreliable for transactions

▪ Financial institutions have the opportunity to capture the equivalent of ~5% of bank deposits and ~2% of consumer credit in Mexico, currently held by informal channels

▪ To capture financial assets currently in informal channels, banks can offer a diverse portfolio of products, such as: commitment savings plans with and without linked credit, employee credit services, life insurance and a correspondent network for deposits

Opportunities6


|

61

Low-income formal workers represent ~15% of Mexico’s HHs, live in urban areas, and work in the food industry and as office staff

6

4

EAPHouseholds

14%


Segment size

2,300

600470460

>100 K15-100 K2.5-15 K<2.5 K



Inhabitants

~75% of the total HHs in this segment live in urban areas, consequently they have access to all utilities and formal financial institutions


People often have at least 9 years of education, which should allow them to better understand financial services and their benefits

SOURCE: Surveys; ENIGH 2008; team analysis

12%


44568

Cook/Waiter Food processing

Basic educationOffice staffPublic sector


This segment’s main occupations are related to the food industry, either in services or in its preparation, and to simple managerial tasks in public or private offices

Top 5Jobs

19133

30

619

9

Finished FinishedUnfinished Unfinished Finished More than High school

Unfinished



|

62

Households in this segment are small family units in urban areas with access to utilities and the ability to acquire diverse house appliances



Computer?

Car?

▪ Housing:– Urban housing in lower-middle or working

class neighborhoods– Kitchen, bathroom, living/dining room and,

usually, parents share a bedroom with small children

– All basic utilities are available: water, electricity, gas, telephone

▪ Family– The average age of the head of household is

42 years– Typically a family unit has

▫ 2 (or 3) adults▫ Two or no underage members

43% 57%

28% 72%

46% 54%

22%78%

NoYes

Cell phone?


Telephone? ▪ Most HHs communicate through cell phones; and don’t need fixed lines

▪ 11% have data service on their cell phone and tend to access the internet through cafes (since so few have computers)

▪ Use of public transportation is common

▪ Purchasing a car is a common aspiration for the segment




|

63

With their low incomes, families barely manage to meet their daily needs and save to pay for monthly expense

2. Cash flows


Main income

▪ Weekly salary (48%)– Payment every week– $1,140 MXP

▪ Fortnight salary (43%)– Payment every 2 weeks – $2,430 MXP

Recurrent expenses

▪ Daily– Food

– Transport


– Education

▪ Annual– Education: $5,000 - $7,000 MXP

– Holidays and birthdays: variable

Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sun

Fortnight cash flow

Household receives income

HH buckles down to keep a “guardadito” for other monthly expenses

Utility or rent payment

AmountAv. MXP


$125

$46

51%

53%

$622

$471

45%

45%

Avg. Monthly Expense $4,210 MXP


|

64

Sa

vin

gs

Cre

dit

Ins

ura

nc

e


Home

Auto

Life

Medical

Auto

Consumer

Mortgage

Payroll account

Other bank account

In a caja

Credit card

17%

4%

4%

28%

28%

16%

0%

10%

17%

20%

49%▪ The entire segment is part of companies’ payrolls; however

over 50% of them are still paid in cash▪ Cajas are the lowest penetrated savings product;

however, people appreciate having this as a job benefit making it their preferred savings option

▪ People have access to small or medium consumer loans in retail stores

▪ Mortgage penetration is also relatively high, this might be due to INFONAVIT loans

▪ Some resistance to credit cards; people believe interest rates and the temptation to overspend are too high

▪ People don’t like IMSS, but seem to have settled for this service, so they do not want more medical insurance

▪ People show particular interest in life insurance; ~30% of people said they’d be interested

▪ Only 8% of car owners have car insurance, while another 16% would be interested in it

Although people in this segment already have access to formal financial institutions, penetration of all products is still very low

3. Product use

“Every now and then you get a surplus, if you can save it away from home you could use that to get more money…”

“I had a bad experience with a credit card in the past… I would never get another one, banks change payment

policies and if you can’t pay on time interest payments eat you up”

“You never know when death will knock on your door. It would be helpful to have insurance to cover the funeral”



|

65

People use informal means to manage their flows and unexpected events, while they use formal means for investments and seasonal expenses



13

87

No

Yes

Percentage

Bought assets 24%


22%

Saved in abank3 54%


17%


39%

Saved athome

47%





(e.g., education)




(e.g., education)

▪ For seasonal expenses, Christmas back to school


▪ For an unexpected event▪ For seasonal expenses,

Christmas back to school



850 MXP

Varies: 100-3,000 MXP

2,000 MXP

2,350 MXP

1,000 MXP

1,200 MXP

Once a week

Varies: every fortnight, month or year

Once a week

Once a month

Once a fortnight

Once a week


3. Product use Low-income formal salaried workers

|

66

The segment uses cajas in a lower proportion to other savings means, however, this is one of their top choices for saving


Save in a "caja" 16%


Save at home 21%


Why is this option preferred? (% of respondents)▪ At home I know my money is safe, I can keep an

eye on it (51%)▪ It’s a very convenient option for us, we have

money at hand when we need it (13%)▪ I don’t have to pay any fees or commissions

(13%)

▪ It’s the most convenient option to save (29%)▪ It forces you to keep some money aside, which

we like (24%)▪ “Tandas” won’t charge any type of commission

(22%)

▪ I know my money is safe; it won’t get lost (31%)▪ They don’t charge any type of commissions

(23%)▪ We can get some extra money by saving in a

“caja” (17%)


|

67

Although people have access to formal means through their payroll accounts, they use more informal and immediate alternatives when in need



18

82

No

Yes

Percentage

1 Average amount asked for the last time they got a loan or sold an asset2 More frequent number of times this vehicle was used to face shortfalls in the last year

3. Product use

8%A supplier

12%Pawn shop

Sell an asset 18%

A "caja" 12%

A bank 11%

Your employer 30%


Ask

ed

fo

r a

loa

n f

rom

…

Top 5 sources for obtaining funds Amount1


~2.5

~3.5

~15

~2.3

~8.5

~0.4

~4.1

▪ More than 3 times in the last year

▪ Twice in the last year

▪ Once or twice in the last year






|

68

Credit usage and preferences are consistent across the segment; people would rather use a loan from family members compared to any other option


Sell assets 12%





▪ It gives us flexibility to pay back when we can (~46%)

▪ It’s the least expensive option; there are no interest payments (~28%)

▪ I feel I can trust my family, I can rely on them when in need (~12%)

▪ We have some flexibility regarding payments (~43%)

▪ It’s the least expensive, zero or low interest rates are charged (~27%)

▪ It’s one of the fastest ways to get money (~10%)

▪ It’s the best way to get money fast (~33%)▪ We don’t like to ask for loans, we’d rather use

what we have first (~27%)▪ It’s the only choice we have, we could not get a

loan anywhere else (~20%)


|

69

Unplanned expenses are covered through family loans and personal savings; the instrument chosen depends on urgency and amount required



12%

Illness 35%

Accident 12%

Pregnancy







▪ “I don’t like owing money”


▪ Evenly distributed between savings, informal loans, caja credit, insurance and pawn shops

▪ A variety of answers, with focus on flexibility and ease of payment

AverageExpense

$ 5,540 MXP

$ 5,270 MXP

$ 7,050 MXP

▪ “Cheapest option”/ “It’s my only choice”

▪ “Flexibility and ease of

payment”

The more urgent and expensive the event, the less savings are used, and the more quickness and flexibility are deciding

factors


|

70

People in this segment have clear goals for the future focused on better education for their children and better jobs…



“I want my children to have a higher education so they can have a better job and earn a higher income that will allow them to improve their lifestyle”

“I want my family to be healthy, live in a safe environment, with an adequate diet and good education. Once you achieve these everything else comes by itself”

“I want a to find a better job and a house of my own where we can live in peace”


|

71

Households are primarily interested in home improvements, and are willing to use credit to finance their future plans





Buy a car 21%

Buy home appliance

32%

Home improvement

54%


26%

$ 21,510 MXP

$ 4,110 MXP

$ 23,800 MXP

$ 36,110 MXP



▪ 36% of HHs plan to pay fully with credit

▪ 32% plan to pay fully with savings



▪ 34% of HHs plan to pay more than half with credit




|

72

This segment experiences daily stress about meeting their basic needs, but also worries about their family’s health and education



Education

Accidents and Illness

▪ Many HHs see education as the only way the family can overcome their social and economic limitations

Daily Expenses ▪ Most HHs can afford their lifestyle, but proximity to break even makes money management a daily concern

▪ HHs generally have social security, but low disability payments and inadequate health services mean they are still vulnerable to emergencies

“Education is expensive, but it is the only key we can give to our children to a better future and life”

“Very often I don’t have any money left by the end of the week”

▪ ~50% of the HHs that spend money on education have experienced shortfalls; they are afraid they won’t be able to pay school expenses

▪ More than half of HHs experience shortfalls when trying to meet daily expenses

“How would I take care of my children if my husband dies? My world would end in an

instant!”

▪ Half of HHs have recently faced accidents and illnesses, spending around a month’s salary



|

73

Households in this segment are not far from most transaction points, but use the closest ones to cover their day to day needs

44%

46%

42%

53%

87%

36%

37%

36%

42%

31%

44%

11%

Cajasde Ahorro

11% 9%

Mom & pops2%

Conveniencestore 11%

4%

Supermarket11%

6%

ATM12%

6%

Bank13%

6%


▪ Banks and ATMs are mostly used for transactional purposes:– Get money from payroll– Withdraw from debit card– Pay credit card


▪ Most daily purchases are in Mom & Pop shops due to their convenience/ proximity and freshness

▪ For low prices people prefer supermarkets (i.e. Bodega Aurrera or Wal-Mart)

▪ Although not that frequently used, cajas are seen as a friendlier and cheaper alternatives to banks

< 15 min.

15-30 min.

30-60 min.

> 60 min

Time it takes from home to get to a… How I get there… I use/like them because…


|

74

People have a generally good perception of financial institutions but don’t think they have enough resources to afford their services


“Cajas de Ahorro are good: if you don’t miss your payments; they’re the

cheapest option”

“I don’t trust them, cajas de ahorro suffered some incidents of fraud a

couple of years ago”

“Cajas de Ahorro are a good way to save but I

can’t afford them”


“I’ve never been inside a bank but my husband has a payroll account in Scotiabank; he takes out all the

money every payday”

“I don’t trust Banco Azteca, what they

promise sounds too good to be true”

“I have a credit card with Banamex and I like the service, they call nicely

when I miss my payments”

“Getting a loan from F. la

Independencia is the worst

mistake a person could make”

“I’d be embarrassed if someone I knew saw me in one… or if the item I wanted to pawn was worthless”

“Pawn-shops leave you penniless”

“They’re abusive and mislead people”


|

75

People value proximity from alternate channels, but in order to use them they need to be convinced about safety and reliability







Yes No


63%37%

43%57%

94

6

34%

Mom &Pop

GasStations

20%

ConvenienceStore

37%

Supermarket

43%

▪ Households prefer supermarkets and convenience stores because they are safe and reliable (32%-33%), while proximity (63%) is the driving preference behind Mom and Pop shops

▪ Detractors frequently question the reliability and

safety (60-75%) of the different channels


▪ This is the urban segment with least interest in mobile banking, though only 4% don’t have a cell phone at home

▪ Most detractors refer to safety concerns (67%), while others were simply not interested (14%) or felt like the option was too difficult or expensive for them (13%)


|

76





Total savings of low-income formal salaried workers are equivalent to ~6% of total bank deposits

Total segment income Billion pesos


209.3

% of national: 6 %

5.5 % 4.9 %

63.471.5


In banks and cajas

8.1


0.6 %

4.3 7.6

11.9



Other vehicles1

2.7 % 1.7 %1 %

GROSS ESTIMATE



6. Opportunities Low-income formal salaried workers

|

77


▪ Offer commitment savings plans ▪ Individuals like having a savings discipline. Almost 40% of HHs have participated in tandas in the last year

▪ Capture a share of employer credit ▪ 30% of HHs got credit from their employers in the last year. For employers, managing these credits is a problem. Financial institutions already have relationships with employers



▪ Offer life insurance ▪ While only 17% have it today, an additional 27% of HHs interested in acquiring life or funeral insurance

▪ Build a correspondent network for deposits and withdrawals

▪ Almost 57% of the people from the segment willing to make deposits and payments in convenience stores or supermarkets, 37% willing to open savings accounts

6. Opportunities

Ne

w p

rod

uc

tsN

ew

pro

du

cts

Savings

Credit

Insurance

New channels

“This product motivates saving since good behavior will be rewarded”

“With overdrafts discounted directly from my paycheck, I would always make my

payments on time ”

“Correspondents are a good option for making payments and withdrawing money. In a supermarket I could buy what I need and also pay my bills ”



|

78




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

ntr

ep

ren

eu

rE

ntr

ep

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%


17%

22%

7%

6%


29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650



|

79 79

Example of low-income formal salaried workeres HH profile Low-income formal salaried workers

Hector, Janet and Jorge

|

80 80

Hector and his small family live in a room at his mother-in-law’s; he is an office assistant and his wife is a housewife (1/4)

Who are they?

Where do they live?


SOURCE: In-depth interviews, team analysis

▪ Héctor (23 years old) lives with his wife Janet (24 years old) and his son Jorge (3 years old)▪ He works as an office assistant, but he wants to be an accountant, he is studying at present▪ He studied business administration in a technical school▪ They live in a working-class neighborhood at Delegacion Alvaro Obregón, in Mexico City

▪ His “apartment” is actually a room and a restroom placed as a extension of his mother in law’s house, so they share the kitchen, living room, etc.

▪ They have electricity, drinking water, gas, access to phone (borrowed) and two cell phones (pre-paid)

▪ They have a TV and a computer

▪ To afford the “basic family food basket” expenses, especially when their kid was a baby and needed a specific type of milk and diapers

▪ To buy their own home (which could be worth $1m MXP); to reach this they will need access to a credit line

▪ To buy a lot ($100,000 MXP) as an alternative to the house

▪ Héctor would like to have a better-paid job

▪ They would like to have a new TV, the only way is through installments (credit)


|

81 81

Hector works during the day, Janet spends the day at homewith her mom and playing with her son (2/4)

A day in the life of Hector and his family

Works

▪ His schedule is very light, and has a lot of free time

▪ He goes to the gym every day

▪ He plays soccer during the weekends

▪ Janet spends a lot of time with her son and her mother

She does the laundry, plays with the kid, prepares supper,

speaks with her mother

Time with family

Have dinnerHas dinner

Goes to the gym

At home with family

Commutes to work

Wakes up and gets ready for work

Sleeps

Wakes up and gets ready

Sleeps

Watches TVWatches TV

SleepsSleeps


Janet and JorgeHector

Nig

ht

Aft

ern

oo

nM

orn

ing


|

82 82

Regular monthly flows

Their income flows are not enough to cover expenses, so they need to borrow from relatives and are vulnerable to unpredictable situations (3/4)

Recurring income:▪ Hector earns $1,500 every two weeks

Recurring expenses:▪ Food and household items: ~$650 MXP▪ Commuting $125 MXP▪ Weekend leisure expenses: $50

Other important expenses:

▪ On a monthly basis they have to pay:– Gas: $200 MXP– Electricity: $50 MXP– Water: $100 MXP– Gym: $100 MXP

▪ Annually, their most important expenses are during:– November/ December: Christmas and son

birthday party $4,000 MXP are spent between the party and their son’s gifts

– August: back-to-school expenses aproximately $600 MXP

They still depend on their family to cover their expenses, but they have good prospects regarding their future

3029282726252423222120191854321 17161514131211109876



|

83 83

Hector has a monthly horizon, but his medium and long term plans are unrealistic (4/4)

Behaviors

Planning:▪ He has a monthly planning horizon:

– They are focused on their daily expenses and they have problems to afford them– On the other hand, they have unrealistic plans according to their current income level

“Shortfalls”▪ When they do not have enough money to cover their expenses:

– They want to save money in a bank, because otherwise they would very likely spend it if kept at home– At present, they cannot cover their expenses, so they have to borrow from relatives– They do not like the idea of loans, due to high interest rates

Perception and usage of financial services ▪ Banks: because of his job he was aware of many banks

– He has an account and a debit card from Banorte, but the branch is located far away– He thinks that there are both kind of people working in any bank : polite and rude

▪ "Cajas de Ahorro": He does not know any▪ Pawn shops: He thinks they take advantage of people’s needs▪ They are interested in many financial services, credit cards to pay for home appliances and a house▪ They are not interested in any insurance coverage because they are expensive and “they will have to read the fine

print” (not trustworthy)

Channel preferences ▪ They prefer to do the shopping at tianguis (open-air marketplace) or Bodega Aurrera, these places are cheaper▪ They are not convinced about paying services nor making deposits with “non-bank correspondents” because of the

fees, but the option of paying utilities and making deposits by using cell phones seems to be very convenient to them



|

84

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations




▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales






▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 3: Mid-income informal entrepreneurs Mid-income formal salaried workers

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85

Segment 3: Mid-income informal entrepreneursDescription

Key characteristics

Cash flows


Product use

1

2

3

4


Beh

avio

rs a

nd

pre

fere

nce

s


5


▪ 1.1 million HHs, 4% of all HHs in Mexico, with between 105K and 220K MXP annual income▪ ~70% of this segment is located in urban areas with access to utilities and financial services▪ 33% of HH heads completed junior high-school, 30% completed high school or higher education▪ The main occupations of these families are related to informal sales and the food industry

▪ Income is received daily, with large fluctuations in revenues and expenses ▪ Most of the money is spent daily or weekly, mainly on food and business merchandise▪ People save money each week to pay for business expenses, and can save part of their income, but generally

prefer investing in their enterprises▪ Around 60% of HHs report shortfalls in personal expenses, and up to 67% indicating shortfalls in their business

costs

▪ ~30% of HHs save in cajas de ahorro, but they prefer informal means to save for planned expenses like keeping savings at home, or using tandas because they’re safer and more convenient

▪ ~60% invested in their business last year as a mean for saving, because of its high returns, ▪ 67% of HHs rely on friends and family to cover shortfalls, while 40% use supplier loans; the segment

appreciates flexibility, and uses the supplier credit when it’s their only choice▪ Seguro Popular provides insufficient service, and only 6% have additional coverage, though more HHs would like

it. Life insurance penetration is highest among informal segments (24%)

▪ Long-term aspirations are focused on improving their business, and making sure it becomes profitable enough to support their family when they are too old to work

▪ Mid-term aspirations are related to improving their house, and obtaining a higher degree of financial stability

▪ HHs opt to shop in supermarkets as they have lower prices and wider variety▪ People feel that banks request too many requirements and would not give them service because they have no

formal income; Cajas de Ahorro and Pawn Shops preferred for savings and credit respectively▪ Interest in the correspondent channel is average, but this segment has highest interest in mobile banking (21%)

among all segments, with over 30% of detractors refusing because they don’t understand the system yet and find it difficult

▪ The segment represents the equivalent of ~1% of bank deposits and ~0.3% of consumer credit in Mexico that is currently held in informal channels by this segment

▪ To capture financial assets currently in informal channels, banks can offer a diverse portfolio of products, such as: commitment savings plans with and without linked credit, expanded consumer credit portfolio, supplier linked credit services, life insurance, medical insurance linked to savings and credit plans a correspondent network for deposits, and a mobile banking platform geared towards entrepreneurs and their needs

Opportunities6


|

86

Mid-income entrepreneurs represent ~4% of Mexico’s HHs, live in urban areas, and have completed Junior High and higher education

3

1

EAPHouseholds

4%


Segment size

577205164163

>100 K15-100 K2.5-15 K<2.5 K



Inhabitants

~70% of the total HHs in this segment live in urban areas, formal financial institutions should be able to reach them quite easily


People have access to higher levels of education, most having completed at least junior high-school


5%


2356

Repairs and maintenance

Food processingCook/WaiterInformal sales


The people from this segment are street vendors or have their own mid-size restaurants

Top 4Jobs

9129

33

0

2412

More than High school

FinishedUnfinishedFinishedUnfinished Unfinished Finished



|

87

Families have houses with more than 3 rooms and often have some space dedicated to their business; to facilitate work they usually own a car



Computer?

Car?

▪ Housing:– Located in urban and semi-urban

communities– Apartment or home with kitchen, bathroom,

living room, dining room and 1-3 bedrooms– Place of business or storage room for

merchandise commonly inside the house– Most utilities available, with some households

having indirect access to gas and water

▪ Family– On average the age of head of household is


▫ 2 (or 3) adults▫ 1 (or 2) underage members

73% 27%

55% 45%

48% 52%

85% 15%

No

Yes

Cell phone?


Machinery?▪ Essential for their

livelihood▪ Key investment and

growth opportunity

▪ Segment with the highest PC ownership; only 18% have data services on their cells so rely on PCs for internet communication

▪ Main means of transport for segment

▪ Segment with the highest car ownership




|

88

Despite their relatively high incomes, this segment frequently faces monthly shortfalls associated with their business costs

2. Cash flows


Main income

▪ Daily income (82%)– Payment daily, highly variable– $400 MXP

Recurrent expenses

▪ Daily– Food

– Transport


– Merchandise

▪ Annual– Clothing $2,000 - $6,000

– Seasonal expenses are high, but typically come in periods with extraordinary profits Month cash flow

AmountAv. MXP


0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

Income and expenses fluctuate

daily

Significant savings generally invested back in business

Natural flow of business can lead to periodic

shortfalls


$137

$56

55%

47%

$1,457

$7,490

57%

67%


|

89

Sa

vin

gs

Cre

dit

Ins

ura

nc

e


▪ Preferences are aligned with use of formal products, people would rather save in cajas more than with any other type of product

▪ Although credit cards are commonly used as cash flow smoothers, they are not the preferred choice because of high interest charges

▪ People prefer store credit and use it to buy appliances or clothes, as it has less requirements than bank credit

▪ People wish they could have some sort of mortgage to buy a home

▪ People have access to Seguro Popular, though poor service lead them to report low penetration of medical insurance and high preference to acquire more

▪ Only 8% of car owners have auto insurance, but only 25% of car owners would like to have this type of insurance

▪ Life has the highest insurance penetration in all informal segments, and many more would like to acquire it

People have limited access to medical coverage, making them vulnerable to illnesses and driving their interest in acquiring medical insurance

3. Product use

24%

6%

0%

6%

36%

12%

6%

27%

30%

18%

12%

Consumer

Life

Auto

Home

Medical

Payroll account

Other bank account

In a caja

Credit card

Auto

Mortgage

“I like to save in cajas because it’s like investing my money; I know that in the end I will receive more than what I had originally; other alternatives don’t give me such a benefit”



|

90

As entrepreneurs, investing in their business is one of the most popular options for saving, along with saving at home and tandas



3

97

No

Yes

Percentage

Bought assets 24%


64%

Saved in abank3 24%


30%


61%

Saved athome

64%





350 MXP

150 MXP

1,700 MXP

350 MXP

400 MXP

700 MXP

Once a week

Every 6 moths

More than once a week

Once a month

Once a week

Once a week


3. Product use




▪ For monthly expenses




(e.g., education)


|

91

This segment already uses their preferred savings options; safety, convenience and getting more from their money are highly valued


24%Save at home

22%Invest inown business

17%Save in a "tanda"


Why is this option preferred? (% of respondents)▪ I feel my money is safe (58%)▪ It’s the most convenient option (21%)▪ It forces us to save and we like it (8%)

▪ It helps me to get more money out of my savings (57%)

▪ I feel it’s a safe alternative for saving (17%)▪ It’s a convenient option for me (13%)

▪ It’s a very convenient option (35%)▪ It’s a safe option for saving (24%)▪ It doesn’t charge any type of commissions (18%)

3. Product use Mid-income informal entrepreneurs

|

92

Although borrowing from family and friends is used by most people in this segment, many also rely on loans from their suppliers to face shortfalls



15

85

No

Yes

Percentage

Top 5 sources for obtaining funds


3. Product use

39%A supplier

9%Pawn shop

Sell an asset 18%

A "caja" 24%

A bank 15%

Your employer 3%


Ask

ed

fo

r a

loa

n f

rom

…

Amount1


~3.0

N/A

~7.5

~0.6

~7.0

~2.3

~1.0


▪ N/A

▪ Once or more than 3 times in the last year

▪ Two or three times in the last year

▪ One to three times in the last year




|

93

Flexibility to repay the loan is highly valued by this segment, mainly due to variable cash flows


Sell assets 10%

Loan from supplier 12%


Credit from a caja 10%



▪ It gives us flexibility to pay back (~44%)▪ I feel I can trust my family, I can rely on them

when in need (~26%)▪ It’s the least expensive option (~24%)

▪ It gives us flexibility to pay back (~64%)▪ It’s our only choice to get credit (27%)

▪ It’s the fastest way to get money when you need it (40%)

▪ Cajas are safe and reliable (20%)▪ They give us flexibility regarding payments (20%)

3. Product use

▪ It helps when you want money fast (44%)▪ We don’t like to ask for loans/ credit (22%)▪ We can get more money this way (11%)▪ They give us flexibility regarding payments (11%)


|

94

The segment’s top unexpected events relate to medical expenses; due to the nature of their jobs, people lack insurance to cover them



12%

Illness 27%

Accident 12%

Pregnancy










▪ 25% used Insurance▪ 25% used a Caja loan


▪ “It’s my only choice”▪ “Flexibility of payment”

AverageExpense

$ 8,180 MXP

$ 4,750 MXP

$ 7,480 MXP

▪ “It’s the quickest way of getting money”


There is an aversion to using credit for emergencies that creates incentives and opportunities, for saving products

3. Product use Mid-income informal entrepreneurs

|

95

People in this segment tend to be independent and highly optimistic



“I would like to buy tools and finally have my own business… and for my daughters to get a degree; it’s possible if we all work hard”

“I want to get a job with growth opportunities, and eventually own a business that can let me work and take care of my son”

“I want to have a successful business with 20 sewing machines and plenty of employees, so I can stop worrying about money when I’m old”


|

96






▪ 22% plan to pay more than half with credit



Plans are relatively long-term and focus on improving or owning a home and business, with HHs planning to use mostly savings to pay for them





Buy own home 21%

Buy home appliance

27%

Start or grow own business

39%

Home improvement

55% $ 18,790 MXP

$ 17,390 MXP

$ 6,510 MXP

$ 200,000 MXP



|

97

Households are worried about unplanned expenses as their cash flow is highly variable, but also think about their long-term welfare



Growth of own business

Long-term welfare

▪ Their entrepreneurial nature leads this segment to focus a great deal of their efforts to asset building, seen as investment and savings

Unforeseen expenses

▪ HHs’ businesses have higher capital requirements than others, but they have limited access to credit or cash flow smoothing products

▪ Their capacity to invest and distance from shortfalls allow them to plan ahead and worry about their retirement, or their children’s education

▪ 39% of segment wants to invest large amounts in improving their business

▪ 22% consider it the best savings option▪ 64% has invested in their business in the last

year

▪ Despite higher income, 67% say they have had shortfalls due to business costs

▪ HHs say unexpected expenses are their main reason for saving in most channels

“My business is going to consolidate to support me in my old age, my plan is to stop worrying

some day”


▪ Main reason for saving in their business is long-term investment


|

98

Segment can easily reach transaction points, is attracted by high value and put off by difficult or slow channels

61%

61%

70%

73%

94%

52%

27%

27%

24%

21%

36%9%

Cajasde Ahorro

3%

Mom & pops3%

3%

Conveniencestore

Supermarket 6%

6%

ATM 12%

Bank 12%


▪ HHs have a low preference for saving, much preferring to invest in their business

▪ They have transactional and credit needs, but are pushed away by requirements of formal services and the hassle of paperwork


▪ Supermarkets are preferred by HHs in this segment because of their variety and low prices

30-60 min.

> 60 min15-30 min.

< 15 min.



|

99

This segment feels that a lack of formal employment makes it impossible for them to get formal credit


“They don’t convince me, they have shady dealings”

“I had an account in one when I could afford it”


“I’ve used community credit, but some groups are too strict and inflexible”

“I receive deposits in Banco Azteca but no bank would give me credit because I don’t have enough personal documents”

Banamex wouldn’t give me a loan because I have no

credit history, despite my income and responsibility

“They have too many requirements and don’t say things clearly when it

comes to credit and loans

“I’m scared of them, I would not use their

services”

Luz Saviñon is a useful option with good service

Some are very cheap, people go with the ones that

give them more for their valuables


|

100

These entrepreneurs show the highest interest in mobile banking, with high potential for converting detractors into believers







Yes

No


64%36%

39%61%

79

21

Mom &Pop

33%

GasStations

18%

ConvenienceStore

52%

Supermarket

55%

▪ Supermarkets are considered attractive because they are a simple (28%) and quick (22%) options, while convenience stores are nearby (18%)

▪ Lack of reliability (60%) is the main reason people

would not use supermarkets or convenience stores, while a significant number of detractors say they are simply not interested (25%)


▪ Urban segment with most interest in mobile banking, primarily interested in convenience (71%)

▪ Some detractors question safety or reliability (46%), but there is a large group that believes the system is difficult to understand (27%) and could be convinced, if taught


|

101





Mid-income entrepreneurs represent ~4% of national income

Segment total income Billion pesos


127.8

% of national: 4 %

1.2 % 1 %

13.415.6


In banks and cajas

2.2


0.2 %

2.21.3

3.5

Other vehicles1From banks and cajas


0.8 % 0.3 %0.5 %

SOURCE: ENIGH; survey; team analysis

GROSS ESTIMATE


6. Opportunities Mid-income informal entrepreneurs

|

102


▪ Offer commitment savings plans ▪ Individuals like having a savings discipline. Over 60% of customers participate in tandas



▪ Capture a share of supplier credit ▪ Almost 40% of HHs receive credit from their suppliers. Managing these credits is challenging for suppliers

▪ Expand consumer credit ▪ This segment is demanding mortgages, credit cards and car loans, and could have enough income to afford them

▪ Offer life insurance ▪ Although 24% already have life or funeral insurance, an additional 27% are interested in acquiring it


▪ Over 60% of consumers willing to make deposits and payments in convenience stores or supermarkets


▪ Over 20% of HHs willing to make cell phone transactions; more can be convinced if they understand the product and feel its reliable

6. Opportunities

New

pro

du

cts

New

pro

du

cts

Savings

Credit

Insurance

New channels


▪ Health emergencies commonly put financial stress on families. Almost 40% of HHs had an unexpected medical expense last year and 30% of these had to borrow from friends or family to cover it

“I would have a clear incentive and if I could earn interest I could have an additional incentive”

“Having access to my accounts through my cell phone could save me time and give me visibility on my finances. However,

to use it, I would need to feel I’m protected from fraud”



|

103




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

ntr

ep

ren

eu

rE

ntr

ep

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%


17%

22%

7%

6%


29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650



|

104

104


Raul and his sons

Example of mid-income informal entrepreneurs HH profile

|

105

105

Raul lives in a small town in the State of Mexico, but spends most of his day at his shop located in Mexico City’s downtown (1/4)

Who are they?

▪ Raul (49 years old) lives with his two sons, Yesel (25 years old) and Yael (21 years old) ▪ They are independent retailers; Raul runs a store dedicated to store and sell merchandise in downtown

Mexico City; he rented a bigger apartment which is currently being renovated▪ He has only finished elementary school. His sons have finished high school, but he is very intelligent and

entrepreneurial ▪ They live in the town of Cuautitlan Izcali, State of Mexico

▪ They have an apartment of 3 rooms, living room, dinning room, kitchen, restroom and terrace▪ They have electricity, drinking water, gas, cell phones (pre-paid) and Internet▪ They have a fridge, stove, TV, DVD and a computer▪ Their truck is being repaired, but they have sued the mechanic because he did not repaired it properly

▪ They are highly concerned about contingencies: they want to meet all their commitments, although contingencies make it difficult

▪ Even though they are healthy, “you never know what may happen”

▪ He wants to be independent always and never depend on others

▪ He has uncertainty regarding how much he will earn on a daily basis. However, he prefers to be a merchant, even though it could be “less stable”, because it provides more growth opportunities

▪ They want to have a new home in 2 – 3 years▪ They want their business to be successful, with 20 sewing

machines and many employees▪ They want to buy a new car▪ They want to enjoy the money they earn (e.g., traveling)▪ “I want to have my savings fund and for my business to be

consolidated after my retirement”▪ They do not want to be worried about unforeseen

circumstances “One day I will stop worrying, that is my plan”

▪ He is very confident about making it happen

Where do they live?




|

106

106

Raul works 6 or 7 days a week and spends Sunday with his sons, sharing business experiences and exchanging advice (2/4)

▪ Very loaded schedule, never stops working and developing his business

▪ Currently, he is fixing his new site, painting and waiting for the arrival of the new sewing machines

▪ He does not eat too much. Only milk and bread in the morning and at dinner, and he has lunch in the street

▪ Sundays are dedicated to house chores shared among the three of them. Occasionally, they eat out

A day in the life of Raul and his children


Sleeps

Raul and his children

Has a shower, does the ironing, has a light breakfast

Commuting

Works

Lunch

Commuting

Commuting

Sleeps

Checks emails, watches TV (news), reviews accounts, has

milk-and-bread dinner

Mo

rnin

gA

fte

rno

on

Nig

ht


|

107

107

Monthly cash-flows

Even though his income level is very unstable, Raul is committed to meet all his obligations (3/4)

Other important expenses and sources of income:▪ Sometimes, they can have extraordinary profits, up to $5,000 - $20,000 in only one day▪ He looks for reinvesting as much as possible, while his sons cover their personal expenses

Recurring income:▪ Regular business profits fluctuate between $120 and $300

MXP on a daily basis for Raul (~30% of the total sales)▪ His sons earn around half that, because they do not have a

fixed location and have to purchase / sell in the same day

Weekly expenses:▪ Commuting: $600 MXP▪ Food and household items: ~$780 MXP▪ Cell phone: ~90 MXP▪ They try to minimize expenses in order to be able to save and

cover the monthly expenses and invest the remaining money

302928272625242322212019181716151413121110987654321

Raul depends on his savings to be able to cover his monthly expenses, even if the period is finished with a positive balance

▪ On a monthly basis they have to pay:– Site rent: $1,200 MXP now, it will be $2,000 MXP– Power: $250 MXP– Gas: $400 MXP– Phone / Internet: $950 MXP– Everything is paid in cash, sometimes at OXXO/7-11

▪ Annually, their most important expenses are concentrated on:– January (annual balance sheet). He has significant

expenditures in December, spending up to $10,000 MXP in clothing, shoes, home improvement, furniture, etc.

– Last year he earned $60,000 MXP between November and December, which allowed him to invest in machinery and in the new site



|

108

108

Raul has a monthly horizon, but he is also planning to improve his home and is also planning his retirement (4/4)

Planning:▪ He has monthly and long-term planning horizons:

– He controls his monthly expenses tightly and tries to separate personal expenses from those of the business– He keeps a significant amount of cash with him and also in his business, in order to fulfill his cash

management needs– This year he wants to buy a new car: He will likely buy it illegally in Matamoros, although it is dangerous, car

prices are as low as $25,000 MXP there

“Shortfalls”▪ When they do not have enough money to cover their expenses:

– In a first instance, he tries to sell more and use his savings (which are kept in his wallet)– For more significant emergencies, he sells-off his merchandise. He went to a pawn shop when her mother passed away– He DOES NOT want to borrow from relatives – he prefers to solve the problems himself

Perception and usage of financial services ▪ Banks: he knows 2 banks, but he does not have a bank account

– Banamex: He used to have a checking account which was cancelled due to an identity theft issue. He would like to come back to Banamex but they would not give him a credit line because of his limited credit record, not even considering his current income level and responsibility in the payment of his obligations

– Santander: He has heard that this bank is good for investing, they pay a high interest rate▪ “Cajas de Ahorro”: He is not convinced about using them, lack of trust due to their poor management▪ Pawn shops: Luz Saviñon is a useful option, which also provides a good service▪ “Tandas” (Collective savings): He is participating in one of $1,000 MXP every 15 days, a service that pleases him

Channel preferences ▪ He prefers to shop at supermarkets because he can find a higher variety of merchandise▪ He thinks it is pointless to make deposits until having $5,000 MXP at hand, because of the long time spent in the bank queue and

the commuting time▪ He pays utilities with non-bank correspondents because it is practical and comfortable. He would also like to save his money there

and he loves the idea of paying utilities and make deposits with his cell phone. Additionally, “… it is much safer than keeping money in my wallet!”

Behaviors



|

109

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations




▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales






▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 4: Low-income informal entrepreneurs Low-income informal entrepreneurs

|

110

Segment 4: Low-income informal entrepreneursDescription

Key characteristics

Cash flows


Product use

1

2

3

4


Beh

avio

rs a

nd

pre

fere

nce

s


5


▪ 2.8 million HHs, 10% of all HHs in Mexico, with less than 105K MXP annual income▪ ~50% of HHs in urban areas, with ~25% in small towns with limited access to financial services▪ Over 50% of HH heads have primary education or less▪ The main occupations of these families are related to informal sales and the food industry

▪ Income is received daily, with moderate fluctuation to revenues and costs ▪ Most is spent on a daily basis, mainly on food and transport▪ People find saving for monthly expenses challenging, and generally save whatever they can spare from their

daily expenses▪ Around 70% of households report daily shortfalls in purchasing food, with shortfalls related to their business

expenses relatively less common

▪ Saving in formal channels is not very common: people prefer saving at home, investing in their business because it’s profitable and in tandas because its safe and convenient

▪ 67% of HHs relied in friends and family to cover shortfalls, while 24% sold assets to cover their expenses; these are also the preferred options as they are the most flexible and quick options

▪ Consumer loans are the most common formal product since people have access to them through different stores▪ Low insurance coverage across all types of insurance products, and more than one third of the segment is

interested in life or medical insurance

▪ Over half of households would like to improve their business or invest in a new one, finding a higher and less volatile source of primary income a chief concern

▪ Almost half of households want to invest in home improvement▪ Managing to cover their daily expenses and have some savings for emergencies are important concerns

▪ HHs opt to shop in supermarkets or Mom and Pops for their convenience and low prices▪ People are interested in using financial services, but are usually forced to stop saving due to necessity and can’t

always commit to credit payments▪ Interest in a correspondent savings account the highest of any segment at 42%, with interest in mobile banking

the second highest at 17%▪ Limited access to preferred correspondent channels (73%) and cell phones (83%)

▪ There’s an opportunity to capture the equivalent of 2.5% of bank deposits and 1.3% of consumer credit in Mexico, currently held in informal channels by this segment

▪ To capture financial assets currently in informal channels, banks can offer a diverse portfolio of products, such as: commitment savings plans with linked credit, supplier linked credit services, funeral insurance, a correspondent network for deposits, and a mobile banking platform geared towards entrepreneurs’ needs

Opportunities6


|

111

Low-income entrepreneurs represent ~10% of Mexico’s HHs, split between rural and urban areas, most having only completed elementary school

5

3

EAPHouseholds

10%


Segment size

1,033438568728

>100 K15-100 K2.5-15 K<2.5 K



Inhabitants

Just above half of this segment is located in cities, while ~25% live in small towns with limited access to financial services


This segment has the lowest levels of education, with most of the segment having only completed elementary school


10%


5510

16

Repairs and Maintenance

Food processingCook/WaiterInformal sales


This segment usually has a small business, either on the streets or in small stands, where they sell merchandise, such as clothes or small items, or simple food

Top 5Jobs

36623

6

2824

Unfinished More than High school

FinishedUnfinishedFinishedUnfinished Finished



|

112

HHs in this segment live in a few rooms, are located in low-income urban and semi-urban neighborhoods with access to all basic utilities



Computer?

Car?

▪ Housing:– Low income neighborhoods or public project

neighborhoods in semi-urban areas– Most but not all houses are made entirely of

cement, 1 or 2 bedrooms with a mixed kitchen/living/dining room, bathroom, and a patio or storage room

– Basic utilities available, usually propane gas tanks instead of natural gas

▪ Family

– On average the age of head of household is 49 years old

– Typically a family unit has ▫ 2 (or 3) adults▫ No (or 1) underage members

39% 61%

19% 81%

42% 58%

71% 29%

No

Yes

Cell phone?


Machinery?▪ Essential for their

livelihood▪ Key investment and

growth opportunity

▪ Access to computers and internet primarily through Internet cafes, with only 7% having data plans through cell

▪ Use of public transportation is more common

▪ HHs are not planning to purchase a car




|

113

Households often face daily shortfalls to cover their basic expenses, this is mainly because of the variability and uncertainty of their incomes

2. Cash flows


Main income

▪ Daily salary (89%)– Payment daily, moderately variable– $150 MXP

Recurrent expenses

▪ Daily– Food

– Transport


– Merchandise

▪ Annual– Clothing ~$2,000

– Holidays and birthdays $0 - $5,000

– Education $1,000- $3,000

Fortnight cash flow

AmountAv. MXP


69%

63%

62%

52%

SatFri Thu Fri Sat Sun Mon Tue Wed Thu FriTueSun Mon Wed

Most expenses and sources of income

occur dailyDaily income saved in

“guardadito” for periodic expenses

Significant risk of shortfalls

$125

$77

$750

$2,816



|

114

Sa

vin

gs

Cre

dit

Ins

ura

nc

e


▪ Preferences are aligned with use of formal products, people would rather save in cajas more than with any other type of organization

▪ Consumer credit is often perceived as the only option for people of this segment to acquire home appliances, but it is not necessarily a preferred channel for them


▪ Segment preferences are aligned with use, with medical and life insurance being the preferred products (over ~30% of the segment is interested in them)

▪ Home insurance is seen as an interesting option, but has the lowest current penetration

▪ 9% of car owners have insurance, but only 13% want to acquire it

Households in this segment like saving in cajas, need more access to mortgages and have unmet insurance needs

3. Product use

“Banks charge a lot of fees, and though they offer good service and are reliable, sometimes they make you go ‘round and round’ to get anything done”

10%

Payrollaccount

4%

Life 11%

Auto 4%

Home 2%

Medical 11%

Consumer 31%

Mortgage 4%

Auto 4%

Credit card 6%

In a caja 13%

Other bankaccount

“ Interest rates in department stores are abusive, I bought an appliance on credit but could never finish paying”

“ Even if I can’t cover my medical expenses with Seguro Popular, I just can’t afford to pay for medical insurance”



|

115

Most people use surpluses to invest in their own business or save in a tanda for monthly or seasonal expenses, unexpected events or the future



19

81

No

Yes

Percentage

Bought assets 18%


43%

Saved in abank3 12%


12%


37%

Saved athome

34%





600 MXP

500 MXP

1,450 MXP

650 MXP

50 MXP

1,050 MXP

Once a week

Once a month

Once a week

Once a month

Once a week

Once a week


3. Product use



(e.g., education)




▪ For seasonal expenses, Christmas back to school





|

116

Although surpluses are mostly invested in the business they own, most people in the segment would rather save money at home


Invest inown business

20%


Save at home 26%



▪ I feel my money will be safe in a “tanda” (33%)▪ It’s a very convenient option (22%)▪ It forces me to save money and I like it (17%)

▪ It helps me make more money (41%)▪ My money will be safe (27%)▪ It’s a very convenient option for my money (24%)

3. Product use Low-income informal entrepreneurs

|

117

Due to the nature of its cash flows, this segment either asks for a loan from family or uses what it has in hand to get extra money when needed



14

86

No

Yes

Percentage

Top 5 sources of money to get extra money


3. Product use

19%A supplier

20%Pawn shop

Sell an asset 24%

A "caja" 17%

A bank 8%

Your employer 4%


Ask

ed

fo

r a

loa

n f

rom

…

Amount1


~1.8

N/A

~13.1

~2.7

~2.6

~3.5

~4.3


▪ N/A


▪ One or more than 3 times in the last year





|

118

Entrepreneurs by necessity would not commit to payment plans and prefer to ask family for loans or use their assets to get some extra money


Sell assets 16%

14%


Pawn shop



▪ It gives us flexibility to pay back (~57%)▪ It’s the least expensive option (~15%)▪ I feel I can trust my family, I can rely on them

when in need (~9%)


▪ It’s our only choice, since we can’t get a credit (19%)

▪ It’s the least expensive option (8%)


▪ It’s our only choice, since we can’t get credit (23%)

▪ It’s flexible regarding payments, if we can’t get the money we’ll loose our asset with no additional pressure (16%)

3. Product use Low-income informal entrepreneurs

|

119

Households try to pay for emergencies with their own savings, but when this are not enough, they ask for help from family and friends



HelpFamily / Friends

8%

Pregnancy 8%

Death 11%

Illness 37%






▪ “Most flexible / cheap option”

▪ “It’s the cheapest option”

AverageExpense

$ 5,740 MXP

$ 4,790 MXP

$ 1,530 MXP


▪ “Flexibility and ease of payments”

Households ask their family and friends for loans, but are also willing to help others when they need it

3. Product use

$ 17, 170 MXP





|

120

There is a heavy emphasis on improving housing and current opportunities, but not always through their own enterprises



“I want to get the deed to my house, have my son and daughter-in-law come live with me, as well as see my daughter graduate as a psychologist”

“I wish I could move to a better house or at least finish mine: get better roofing, and a more comfortable bed. All these may be possible if I can get a stable job”

“I’d like to open an organic vegetable stand or learn a trade to find a better job, and be able to get a house of my own”


|

121

Households plan to improve their homes and expand their businesses; to pay for it they rely on credit more than any other segment





Go on vacations 16%

Buy home appliance

27%


48%

Home improvement

51% $ 21,440 MXP

$ 10,880 MXP

$ 4,360 MXP

$ 9,460 MXP

▪ 33% of Households plan to pay half with credit

▪ 29% plan to pay fully with credit or savings


▪ 33% plan to pay fully with credit

▪ 36% of Households plan to pay fully with credit


▪ 46% of Households plan to pay fully with savings

▪ 31% plan to pay fully with credit



|

122

Households in this segment focus their efforts on daily challenges, and are looking for a better source of income



Inadequate source of income

Accidents/ Illnesses

▪ Heads of households are engage in very simple commercial activities that cannot grow organically into more profitable enterprises

Daily expenses ▪ Almost all planning, as families and as entrepreneurs, happens day-to-day. HHs save as they can, they do not have a structured plan based on their needs

▪ Households rely heavily on their family to weather emergencies, to the point that they consider helping friends and family a key unplanned expense

▪ Almost half of the sample is looking to invest in their business or start a new one

▪ Unlike higher income entrepreneurs, people in this segment are also interested in formal jobs

▪ Almost 70% of all households periodically face challenges in paying their daily food expense

▪ Most business costs and investments occur daily, with entrepreneurs often buying and selling merchandise more than once a day

“I’m afraid that if I get sick, nobody will be able to take care of my daughter”

▪ Illness and death are mentioned most as unplanned expenses

▪ More than a third of uninsured HHs want life and medical insurance



|

123

Potential correspondents are often at a walking distance, while more traditional channels have to be accessed through public transport

41%

41%

43%

48%

83%

54%

35%

35%

35%

30%

25%

4%

Cajasde Ahorro

7% 13%

Mom & pops10%

4%

Conveniencestore

8% 13%

Supermarket 8% 13%

ATM 10% 14%

Bank 10% 14%


▪ Some HHs appreciate banks for their reliability and seriousness, but they are seen as less accessible than cajas


▪ Many HHs like to shop at the nearest tianguis, since they are a cheap and convenient option for fresh produce

▪ Other HHs feel Mom and Pop stores are convenient and perceived as inexpensive

▪ Higher proximity, and a more friendly image, make this the preferred option for savings in this segment

< 15 min.

15-30 min.

30-60 min.

> 60 min



|

124

This segment is familiar with financial services; however, they have mixed opinions according to their current or past experiences


I think they’re interesting but can’t afford to save now

“I have a bad impression of them, I think they’re more expensive


“F. Independencia gave me a loan that ballooned until it was unpayable, and sent debt collectors to my

home”

I had a Banco Azteca account but closed it. I assume most other

banks are good and experienced

They’re more reliable, give you receipts and care about

your concerns, but can be evasive and abusive when it

comes to credit

I get deposits in Bancomer and I like their service; I liked Bansefi too

but they shut down their branch

Bancomer’s saving account fees are too high, Banorte is better

“First Cash is a good option, but

Empeño Garantizado are overly expensive and dishonest”

“I have a loan from CEFEMEX, they can be helpful”


|

125

This segment is willing to experiment with alternate channels, however, some barriers still need to be overcome to win their trust







Yes

No


58%42%

43%57%

83

17

Supermarket ConvenienceStore

27%35%

Mom &Pop

GasStations

34%47%

▪ Segment with highest interest in opening a savings account through correspondents

▪ Supermarkets are preferred because they are easy to use (28%) and reliable (26%)

▪ Segment where perceived lack of access (27%) drives more detractors, though safety and reliability (45%) are still the main concerns


▪ High interest in mobile banking, particularly attracted to speed (43%) and comfort (36%) of service

▪ Segment where most detractors indicated lack of cell phone (17%) and personal preference (19%) were the key issues, with 20% considering the service was too difficult to use


|

126





Low-income entrepreneurs contribute ~4% of the national income



119.5

% of national: 4 %

2.7 % 2.5 %

32.534.6


In banks and cajas

2.1


0.2 %

7.6

13.3

5.7



3 % 1.3 %1.7 %


GROSS ESTIMATE

6. Opportunities



|

127




▪ Similar to popular tanda model: some individuals already see tandas as a combination of savings and credit

▪ Capture a share of supplier credit ▪ Almost 20% of HHs have received credit from their suppliers. Managing these credits is challenging for suppliers

▪ Offer funeral insurance ▪ 35% of HHs interested in acquiring life or funeral insurance, while only 11% have it today


▪ 57% of consumers willing to make deposits and payments in supermarkets and Mom and Pops; 42% interested in opening savings accounts with them


▪ 17% of HHs willing to make cell phone transactions; more can be convinced if they get to know the product and feel its reliable

6. Opportunities

Ne

w p

rod

uc

tsN

ew

pro

du

cts

Savings

Credit

Insurance

New channels


“I don’t know how to use cell phone applications, I’d like to take a course on the service before using it”

“I need help to improve my house, but companies that lend you construction materials charge too much for the product”

“They lend me some merchandise, I make money with it and pay back: It’s a win/win!”


|

128




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

ntr

ep

ren

eu

rE

ntr

ep

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%


17%

22%

7%

6%


29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650



|

129

129


Graciela and her family

Example of low-income informal entrepreneurs HH profile

|

130

130

Who are they?

▪ The expenses she is most concerned with are food and her children’s education

▪ She is concerned about leaving something for her children when she retires, she does not trust her husband will be able to provide for them

▪ She worries about day-to-day expenses, she feels her husband prioritizes his own extended family by sending them money first

Where do they live?


Graciela lives at her parents’ with her family. She is worried about her children’s future (1/4)

▪ They live in Saltillo, Coahuila’s state capitol▪ They live at Graciela’s parents’ which has two bedrooms, bathroom, living room /

dinning room, kitchen and a storage room▪ They have a TV, DVD player, refrigerator, stove and washer and drier machines▪ They have electricity, water, cell phone (prepaid) and propane gas tanks

▪ She wants their children to receive quality education▪ She is going to make an effort to be able to give their

daughters a 15th-birthday celebration (“quinceaños”)▪ She would also like to have her own house, since the

house they currently live in is owned by her parents▪ She does not see it as a very feasible option, but she

will work very hard to get a loan from Infonavit

▪ She is Graciela, she is 28 years old and she lives with her husband Raudel (24 years old), her daughters Jasmin y Yamileth (7 and 4 years old respectively), her son Marco (1 year old), one nephew, and her parents (74 and 66 years old); however they manage separate finances and share very few expenses

▪ Her husband is a taxi driver; her father is a merchant when he needs to get money

SOURCE: In- depth interview; Team Analysis


|

131

131

Raudel’s labor schedule limits family time, but Graciela has strong bonds with her children and parents (2/4)

One day with Graciela and her family

▪ Raudel works every day from 7:00 PM until 3:00 AM, and eats on his own

▪ Graciela’s favorite activity during the day is watching her favorite soap operas on TV

▪ Graciela’s parents do not follow any particular schedule, her father goes to sell products when he needs to

▪ They do not go out often; the daughters play with other young relatives and neighbors

SOURCE: In-depth interview; Team Analysis

Sleep

Wake up and get ready

Jasmin goes to school

Yamileth goes to school

Graciela delivers the lunch to the kids

Takes care of Marco, cleans the house

Kids return from school. They do their home work and watch videos

They eat together

Graciela cleans does the dishes, listens to music and watches TV

Kids play and do their home work

Dinner

Graciela watches her soap operas and help her kids with their homework

Sleep

Sleeps

Has a shower, gets ready, etc.

Eats

Watches TV, free time

Goes to work (night shift in a taxi)

Mo

rnin

gA

fte

rno

on

Nig

ht

Graciela, Jasmin, Yamileth and Marco Raudel


|

132

132


Graciela depends on what Raudel can and wants to give her; when there is no money she has to change her diet (3/4)

Daily income:▪ Raudel earns $200-300 MXP daily; from that

amount he has to pay the rent and gas for the taxi ▪ Graciela does not have a clear idea of the

business, she only gets about $150-250 MXP every day

Weekly expenses :▪ Food $80 MXP▪ School supplies $160 MXP▪ Propane gas $200 MXP, her parents pay half of it▪ Loan from cousin $500 MXP for 15 weeks

Other important sources of income :▪ Every 15th and 30th day (paydays) of the month, Raudel earns more income▪ Electricity and Water bills $700 MXP every two months and $200 MXP every month respectively, her parents

pay half of it▪ Raudel frequently sends money to support his brothers and parents▪ Her parents spend about $1,500 MXP every 10 days in medicines for a sick nephew▪ The school expenses: enrollment, school uniforms and school supplies are around $2,700 to $3,200 MXP

annually▪ They spend about $500 MXP for Christmas Dinner, but only if they can spare the money

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

When Graciela has unsatisfied needs, she buys less food and does not give her daughters additional money



|

133

133

Graciela struggles to cover her daily and contingent expenses, and she has had mixed experiences with financial services (4/4)

Behaviors

“Shortfalls”▪ When the money she receives is not enough, Graciela:

– Stops giving money to her daughters or spends less on the food budget (“…beans, eggs, cooking oil… only the bare essentials”)– Borrows money from relatives or pays a lower percentage of the household expenses– She used pawn shops when she was sick

Perception and usage of financial services▪ Banks: Bancomer, Compartamos, Banamex, she has used the services of the first two banks

– They are more reliable and they give a receipt, they have a good customer service and try to answer her claims – Sometimes they “transfer you from one person to the other, around and around”; due to bad experiences in the past she thinks

loans can be abusive▪ Compartamos is a good loan option, but it is not for emergencies because you cannot choose when to ask for the loan▪ Pawnshop: FirstCash and Empeño Garantizado, she sees the latter as more expensive and dishonest▪ Moneylenders: Financiera La Independencia, she had a loan and they charge her too much interest, until it was impossible for

her to pay them: collection people asked her to pay frequently▪ “Tandas” (collective saving): she participated in one, but never got the payment when it was her turn, she will not save money with

friends again

Channel preferences▪ She likes to make her purchases at the grocery store because of its low prices▪ She would not make payments or would not save money with non-bank correspondents because she feels they are not

trustworthy “because they can go bankrupt any day”; she will risk using cell phones to save money, though

Planning:▪ Graciela has a weekly planning horizon, she plans to:

– Pay her loan : She has to make weekly payments to her cousin, and the amount is high – Utilities: She needs to save and to reduce expenses to be able to make the monthly and bi-monthly payments– Enrollment: She needs to save money to pay for school enrollment fees and school supplies every year

▪ Graciela requests Raudel for money as she needs it. She does not manage the household income

SOURCE: In-depth interviews; Team analysis


|

134

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations

▪ Mother▪ Two sons (age



▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales






▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 5: Informal salaried workers Informal salaried workers

|

135

Segment 5: Informal salaried workersDescription

Key characteristics

Cash flows


Product use

1

2

3

4


Beh

avio

rs a

nd

pre

fere

nce

s


5


▪ 5.4 million HHs, 20% of all HHs in Mexico, with less than 220K MXP annual income▪ Less than 50% of HHs live in big cities; ~40% in small towns with limited or no access to financial services▪ ~50% of HH heads completed at least junior high school▪ Heads of HHs generally work in housekeeping, construction, and food processing

▪ Income is received weekly, with higher job rotation than in formal sectors ▪ Most of the money is spent on a daily basis, mainly on food and transport▪ One of the segments with least savings capacity, though infrequent income forces them to plan their expenses

per fortnight▪ Around 60% of HHs report shortfalls in daily and monthly expenses, occurring almost every month

▪ Saving in formal channels is not very common: ~35% saved at home in the last year, while ~40% use tandas. People prefer this alternatives because they’re safe and free options

▪ Though only 11% currently save in cajas, an additional ~30% would like to▪ 65% of HHs rely on friends and family to cover shortfalls, while ~20% use employer loans and pawn shops to

cover their expenses, as they are flexible and inexpensive▪ High demand for more mortgage products and mixed opinions about credit cards▪ ~35% want life insurance and ~30% medical insurance, though current penetration is low

▪ Households are very interested in finding a better source of income, as formal salaried workers or as informal entrepreneurs

▪ Over half of HHs want to invest in home improvement▪ Managing to cover daily expenses and have some savings for emergencies are key concerns, as they depend

on their families and friends for any unexpected expenses

▪ HHs opt to shop in supermarkets or tianguis for their low prices, good service and variety▪ People are curious about financial services but low incomes limit their access and use of them, which drives them to

prefer the options with lowest fees and interest rates ▪ Low interest in correspondent and mobile banking, due to perceived unreliability of both options and distance

from trustworthy correspondents (ie. Supermarkets)

▪ Financial institutions have the opportunity to capture the equivalent of ~7% of bank deposits and 2.5% of consumer credit in Mexico that is currently held by informal channels by this segment

▪ To capture assets, currently in informal channels, financial institutions can offer a diverse portfolio of products, such as: commitment savings plans with linked credit, employer credit services, life insurance and medical insurance linked to credit or savings plans (for C- to D+ HHs), and a correspondent network for deposits

Opportunities6


|

136

This segment represents ~20% of Mexico’s HHs, is divided between urban and rural areas, and works in housekeeping or construction

9

5

Households EAP

20%


Segment size

2,4408599001,225

>100 K15-100 K2.5-15 K<2.5 K



Inhabitants

Less than 50% of the total HHs in the segment live in big cities, and ~40% have no or limited access to financial services


~50% of the segment has at least completed junior high, which means they were able to study for 9 years or more


19%


148

1213

SalesSpecialized construction

Food processing

ConstructionHousekeeping


Construction is the main occupation for heads of families in this segment, followed by jobs related to housekeeping

Top 5Jobs

6104

30

5

2612





|

137

Housing in this segment varies significantly, depending on the income level of the household



Computer?

Car?

▪ Housing:– Ranges from urban to semi-urban houses to

2 rooms apartments. Family units may have more than one household

– They may have just one bedroom and a kitchen/living/dining room or be a traditional house unit

– Most have access to electricity, running water and propane gas tanks or natural gas, some have additional services

▪ Family– On average the age of head of household is


▫ 2 (or 3) adults▫ No (or 2) underage members

28% 72%

19% 81%

44% 56%

77% 23%

No

Yes

Cell phone?


Telephone?▪ Most HHs communicate

through cell phones; not a necessity

▪ Urban segment with lowest ownership

▪ 10% of HHs have data service on their cell phone so they need to buy internet services elsewhere


▪ Segment with lowest car ownership




|

138

The majority of households receive weekly incomes and face sporadic shortfalls, but generally manage to cover their regular expenses

2. Cash flows


Main income

▪ Weekly salary (72%)– Payment every week, $1,390 MXP

▪ Fortnight salary (22%)– Payment every 2 weeks– $3,570 MXP

▪ Moderate to high job rotation/income variability

Recurrent expenses

▪ Daily– Food

– Transport


– Education

▪ Annual– HHs spend on holidays and birthdays

depending on their capacity to save

– Education (tuition & supplies) ~ $2,000

ThuWedTueMonSunSatFriThuWedTueMonSunSatFri Fri

Fortnight cash flow

Most outflows come daily

Income level determines proximity

to shortfalls

Salary payment may vary in amount or stop

for periods

AmountAv. MXP


$115

$77

62%

49%

$571

$937

59%

38%

Avg. Monthly Expense$ 4,840 MXP


|

139

Sa

vin

gs

Cre

dit

Ins

ura

nc

e


▪ Though formal savings are relatively uncommon in this segment, almost one third of those who are not saving in a Caja wish they were

▪ Consumer credit is commonly used and preferred


▪ There is some interest in credit cards but other households believe it is an expensive or dangerous option

▪ Life insurance has the highest penetration, and more than a third of those that don’t own it want it

▪ Home and medical insurance are almost as attractive, but have very low current penetration

▪ 12% of car owners have, and 17% want, auto insurance

Households have low financial penetration, but one in every three households without insurance wants it

3. Product use

“I don’t like saving at home, I want to learn more about other options even if I’ve had bad experiences in the past”

“ I would be willing to pay an annual fee for life insurance if it can cover my funeral expenses and leave some money for my children”

1%

16%

Medical 9%

Consumer 23%

Mortgage 3%

Auto 2%

Credit card 7%

In a caja 11%

Other bankaccount

8%

5%Payrollaccount

Life

Auto 5%

Home



|

140

The 75% of people in this segment who save use informal means more frequently than formal means to face unexpected events and expenses



25

75

No

Yes

Percentage

Bought assets 16%


23%

Saved in abank3 12%


11%


36%

Saved athome

46%






3. Product use

600 MXP

250 MXP

5,000 MXP

500-5,000 MXP

150 MXP

150 MXP

Once a month

Varies: monthly or once a year

Varies: one to 4 times a month

Every three months

Once a month

Once a week

▪ For monthly expenses▪ For an unexpected event










|

141

People are already using their preferred savings options; safety and convenience are the main drivers behind their preferences


Invest in abusiness

15%


Save at home 28%



▪ It’s a safe way of saving (23%)▪ It will force me to keep some money aside (21%)▪ It doesn’t charge any type of commission (20%)

▪ It will help me get more money (45%)▪ It’s a very convenient use of savings (23%)▪ It’s a safe bet for your money (15%)

3. Product use Informal salaried workers

|

142

Informal salaried workers mainly ask family and friends for loans, but can also use employer credit and pawn shops



15

85

No

Yes

Percentage



3. Product use

7%A supplier

19%Pawn shop

Sell an asset 15%

A "caja" 13%

A bank 5%

Your employer 21%


Ask

ed

fo

r a

loa

n f

rom

…

Amount1


~2.0

2.1

~13.8

~2.3

~12.3

~3.3

~4.5




▪ Once or twice in the last year

▪ One or more than 3 times in the last year




|

143

Preferences are pretty much aligned with uses of credit; safety, flexibility of payments and costs drive people’s choices for facing shortfalls



Sell assets 15%




▪ It gives us flexibility to pay back (~42%)▪ It’s the least expensive option, usually we don’t

have to pay interests (~26%)▪ I feel I can trust my family, I can rely on them

when in need (~15%)


▪ It’s our only choice, since we can’t get credit (23%)

▪ It’s the least expensive option (11%)▪ It’s a safe and reliable way to get money (11%)

▪ It gives us flexibility to pay back (~47%)▪ It’s the least expensive option, there are no or

low interest payments (~19%)▪ It’s a safe and reliable alternative (15%)


|

144

The most frequent unplanned events for this segment require expensive medical care; they use their savings or ask for help



11%

Illness 32%

Pregnancy 9%

Death







▪ “Flexibility and ease of payment”

▪ “I don’t like to owe money”


▪ “I don’t like to owe money”

AverageExpense

$ 9,130 MXP

$ 10,970 MXP

$ 7,140 MXP

▪ “I don’t like to owe money” / “Flexibility and ease of payment”

▪ “Safest / quickest way to get money”

Savings and loans from family and friends are preferred because they are more flexible options and households have

an aversion towards formal credit


|

145

People in this segment want to acquire assets, but are also wary of risks in the future



“I wish everyone could have a job and they weren’t so scarce: as long as I can stay healthy, I could get a better job and save up to get my own fondita”

“I’d like my family to succeed, be peaceful and well: I want to start my own business selling environmentally friendly bags, be independent, buy a car and a house”

“Though I don’t have big plans for the future, I’d like to save money for unexpected events and maybe even buy a car”


|

146

Aspirations are more focused on broadening opportunities in the future, and households are willing to use credit to make it happen





Family member’s education

21%

29%


38%

Home improvement

57%

Buy home appliance

$ 11,080 MXP

$ 20,704 MXP

$ 3,820 MXP

$ 12,770 MXP







▪ 31% of Households plan to pay fully with savings




|

147

This segment struggles to pay periodic expenses and highly vulnerable to emergencies, but are actively looking for a better income source



Inadequate sources of income

Unexpected Expenses

▪ Informal salaried workers are by nature transitional: they seek to enter the formal workforce or become informal mid-income entrepreneurs like their employers

Periodic expenses▪ Family members share utility

expenses or lend to each other to ease shortfalls

▪ Most financial planning focuses on covering expenses

▪ Lack of “guardadito”, proper insurance coverage and adequate social security leads to extreme vulnerability to serious accidents and illnesses

▪ 60% of HHs report shortfalls in their daily and monthly expenses

▪ Proximity to shortfalls make transactional saving a challenge

▪ Main reason for saving in most channels is to cover unexpected expenses

▪ 74% have managed to save in the last year, and penetration of formal saving products is very low


▪ 38% of the segment plan to invest in their own business

▪ Income not sufficient for households to live independently, and they have high job rotation


|

148

Most households have all transaction points less than 30 minutes away from their homes, but are reluctant to use banks

42%

44%

43%

47%

88%

46%

37%

38%

40%

34%

34%Cajasde Ahorro

11% 9%

Mom & pops2%

Conveniencestore

10%

13%

7%

Supermarket10%

7%

ATM11%

7%

Bank 13% 7%


▪ This segment is particularly averse to banks, seeing them as inefficient, unreliable or arrogant and inaccessible


▪ Supermarkets and tianguis are used for most grocery shopping due to their prices, service and variety

▪ More trustworthy and approachable for this segment than banks, used for savings accounts

< 15 min.

15-30 min.

30-60 min.

> 60 min



|

149

This segment attempts to save but usually stops due to necessity; they prefer options with low fees and interest rates


“I saved 500 pesos in one for 11 months and, when December

came, the caja disappeared with all my money”

“I save in Caja Popular Mexicana and am very happy: their branches

are closer, have better service and are more reliable than banks”


“I wouldn’t use them because I don’t feel I have anything that’s

worth enough to be pawned”

“I asked for a loan when I was sick and couldn’t work, it’s a good

option but only if you have valuable objects”

“They have too many requirements, charge high

interest rates and fees, don’t let you take out your

money and give you nothing for saving with them”

“I’d like to use their services but I don’t really trust them: I think they’re arrogant and I probably don’t have

enough money”

“Every time I went to Banamex I took 2 hours in line, it’s too slow!”


|

150

Though households display a low interest in alternate channels, closer formal correspondents could be appealing







Yes

No


72%29%

40%60%

91

9

32%

Mom &Pop

GasStations

20%

ConvenienceStore

42%

Supermarket

44%

▪ Proximity (22%-23%) is the main driver of interest for both supermarkets and convenience stores, followed closely by ease of use (20%-21%)

▪ While most detractors question the safety and

reliability (49%) of these options, many claim lack of access (22%-29%) as a factor


▪ Low interest in mobile banking, mainly due to low perception of reliability/safety (55%), lack of interest (18%) and the difficulty of the system (16%)

▪ Only 6% claimed lack of access to a cell phone was a factor


|

151





Mid- and low-income informal workers represent ~11% of Mexico’s income



362.0

% of national: 11 %

7.3 % 7.0 %

90.294.3


In banks and cajas

4.1


0.3 %

9.2 11.1

20.3

Other vehicles1Total segment credit balance


4.5 % 2.5 %2 %


GROSS ESTIMATE


6. Opportunities Informal salaried workers

|

152



▪ ~20% of HHs get credit from their employers every year. For employers, managing these credits is a problem. Financial institutions already have relationships with employers


▪ Individuals are interested in leveraging their savings to obtain home improvement credit

▪ Similar to popular tanda model: some individuals already see tandas as a combination of savings and credit

▪ Offer life insurance ▪ 36% of HHs are interested in acquiring life or funeral insurance, while only 16% have it today


▪ 60% of consumers willing to make deposits and payments in convenience stores and supermarkets if the channel is cheap and reliable

6. Opportunities

Ne

w p

rod

uc

tsN

ew

pro

du

cts

Savings

Credit

Insurance

New channels


▪ Health emergencies commonly put financial stress on families. 40% of HHs had an unexpected medical expense last year and 38% of these had to ask friends and family to cover it


“Seeing changes in my home is a strong incentive to keep saving and be responsible”

“It’d be great to make transactions in the shop next door, but who will pay for the shop owners’ terminals?”

“Even if I hate having to explain my problems to him, I trust my boss more than financieras for credit


|

153




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

nte

rpre

ne

ur

En

terp

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%


17%

22%

7%

6%


29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650



|

154

154


Patricia

Example of informal salaried workers HH profile

|

155

155

Patricia lives with her family and helps with some of the household expenses (1/4)


Who are they?

▪ She is Patricia; she is 23 years old▪ She lives with 6 brothers and sisters, her mother; next to another sister and her husband▪ She is a cashier at a lunch shop; she sells seasonal products whenever she can▪ They live at the outskirts of Silao, a municipality of Guanajuato state; it is part of the Leon

metropolitan area

▪ They live in house made of cement and tile roofs ; it has three bedrooms, bathroom and a multiple-use room

▪ They have a refrigerator, TV, and stove, but no washer or drier machine and no phone▪ They have electricity, water, cell phone and natural gas▪ Her married sister lives in a room which was added to the house

▪ Patricia is concerned about the sense of union within her family and about their health; she is also concerned about the expenses of the main holidays of the year

▪ She does not have people depending on her nor strong financial commitments

▪ She gives her mother 44% of her income, which is used to support the education of her younger sisters

▪ Patricia is not looking to make any big investments in the near future

▪ She would like to have a car of her own

▪ She would like to be able to save more money for any unexpected expenses

Where do they live?



|

156

One day in Patricia’s life

156

Patricia works 6 days a week and she spends her free time with her family (2/4)

▪ Monday to Saturday, her days are very similar

▪ Her favorite part of the day is when she leaves her job

▪ On her free time, Patricia enjoys playing soccer, chatting with her family, watching movies and going to the countryside

▪ On Sundays she attends mass, helps with household chores and goes to parties when she can


SleepsWakes up and gets ready

Takes a truck to Leon downtown

Has breakfast and arrives to her job

Works

Eats at the post

Works

Takes truck back home

Has a shower and has dinner with her family

Free time

Sleeps

Mo

rnin

gA

fte

rno

on

Nig

ht

Patricia


|

157

157

Monthly cash-flows

Patricia covers her personal expenses with 66% of her income (3/4)

Weekly income:▪ Patricia has a weekly wage of $900 MXP▪ $400 MXP are taken by her mother for food

expenses, dinner, service utilities, commuting and expenses of her younger sisters

Weekly expenses:▪ Breakfasts: $300 MXP▪ Credit to purchase clothing and shoes $100-150

MXP▪ Cell phone $50 MXP

Other important expenses and sources of income:

▪ Whenever possible, Patricia likes to go to parties on Sundays (~$200 MXP)

▪ For June and December holidays, Patricia tries to save $300 MXP per month

▪ For February 14th and May 10th she sells seasonal merchandising and handmade crafts. She spends $1,000 MXP and earns between $1,000 to $1,300 MXP

302928272625242322212019181716151413121110987654321


Whenever she can, Patricia likes to go out during the weekends


|

158

158

Behaviors

Patricia is interested in saving, but she does not have any planning goals (4/4)

Planning:▪ Patricia has a weekly planning horizon, she plans for :

– Credit: Patricia makes weekly payments for clothing purchases– Major expenses: Patricia seeks to save money, but she does not commit to it

▪ Her mother manages part of her income, which reduces her need for planning

“Shortfalls”▪ When the money she earns is not enough, Patricia:

– Asks her family for a loan▪ Although she uses consumer credit, she only uses it when she is able to pay it back

Perception and usage of financial services▪ Banks:

– She doesn’t think she has enough money or fulfills the requirements to have a bank account– She is interested in their services, but she does not trust them completely; she has never gone into one and she

feels they are arrogant▪ “Cajas de Ahorro”:

– The only difference she finds with regular banks is that it is easier go get a credit from them

Channel preferences▪ She makes her purchases at Bodega Aurrera, downtown markets and pawn shops. They give her low prices and

good variety of products▪ She is interested in cell phone and non-bank correspondents as payment channels, but she will not use them to save

money, she thinks cell phone companies can make your money disappear and stores are not reliable

SOURCE: In-depth interviews; Team analysis


|

159

Source of Income

Fo

rmal

sal

arie

d w

ork

ers

Fo

rmal

sal

arie

d w

ork

ers

En

trep

ren

eurs

En

trep

ren

eurs



Agriculture workers

Agriculture workers

Middle income

Middle income

1

Low income

Low income

2

Middle income

Middle income

3

Low income

Low income

4

5

6



Main Aspirations




▪ Selling cookies


▪ Buy own home







21)



▪ Buy own home



▪ Informal sales






▪ Buy her own car



family

▪ Livestock owner

▪ Day laborer



Segment 6: Agriculture workersAgriculture workers

|

160

Segment 6: Agriculture workersDescription

Key characteristics

Cash flows


Product use

1

2

3

4


Beh

avio

rs a

nd

pre

fere

nce

s


5


▪ 2 million HHs, 8% of all HHs in Mexico, with less than 220K MXP annual income▪ ~80% of HHs live in small rural communities with limited or no access to financial services and utilities▪ Half of HH heads have primary education or less▪ Heads of HHs generally work in agriculture and ranching, as a main or supplemental income

▪ Income is received weekly or daily, is highly volatile and depends on season and weather▪ Most of it is spent on a daily basis, mainly on food, but there are high seasonal expenses▪ One of the segments with lowest propensity to save (75%), though access to additional food supply mean

reports of shortfalls are relatively uncommon (~45%)

▪ Perception of safety and convenience lead HHs to save in their homes and in tandas, but cajas de ahorro are just as interesting to them for the same reasons

▪ Cajas de ahorro have a moderate penetration of 8%, with many of those who don’t currently have accounts wishing to open one

▪ 71% of HHs rely on friends and family to cover shortfalls, while 15% prefer employer and pawn shops as they are flexible, fast and inexpensive

▪ Insurance product penetration is low, and willingness to pay for insurance is limited

▪ Households would like a better and more stable livelihood, wishing their children could eventually exit the segment to avoid repeating their hardships

▪ Medium term aspirations of this segment are improving their home and buying an appliance▪ Seasonal expenses are high for this segment, and a key concern in their lives

▪ HHs shop in tianguis when they can because they are cheap and have good variety, but most of the time cover their daily needs in Mom and Pop shops

▪ Though cajas de ahorro are well established among the segment, limited experience with other channels allows word of mouth to influence perceptions and leads to mistrust

▪ HHs express low interest in correspondent and mobile banking, though some already use caja de ahorro services delivered through rural convenience stores

▪ This segment represent a limited opportunity for financial institutions since it saves the equivalent of ~0.5% of bank deposits and ~0.5% of consumer credit in Mexico, currently held in informal channels by this segment

▪ If institutions were interested in capturing their current financial assets in informal channels, banks could offer a diverse portfolio of products, such as: commitment savings plans with and without linked credit, funeral insurance, and a correspondent network for credit

Opportunities6

Agriculture workers

|

161

This segment represents less than ~10% of Mexico’s HH, over 80% lives in remote areas with very limited access to financial services and education

3

2

EAPHouseholds

8%


Segment size1755296

1,650

>100 K15-100 K2.5-15 K<2.5 K



Inhabitants

~80% of the total HHs in this segment live rural areas far from big cities and with limited access to formal financial services


Most people have only completed basic education. However, those who begin either junior high or high-school tend to complete their studies


6%


48

1

Fishing and huntingAgriculture


~50% of the segment is dedicated to agriculture, either working their own lands or working for someone else for a daily or weekly income

Top 2Jobs

13130

130

2921




Agriculture workers

|

162

Families in this segment usually have small houses in rural areas with a single room where everyone sleeps, with limited access to utilities



Computer?

Car?

▪ Housing:– Houses in rural communities– More than one household may live in the same

residence, and it is common for small family units to sleep in the same bedroom

– Houses may have livestock in their yards, for transportation or additional income

– Electricity, propane gas tanks and water concessions (paid annually) are common

▪ Family– On average the age of head of household is 46

years old– Typically a family unit has

▫ 2 (or 3) adults▫ 0-2 underage members

29% 71%

13% 87%

38% 62%

58% 42%

NoYes

Cell phone?


Telephone?▪ Alternative to cell

phones; 83% of HHs have one or the other

▪ 8% of HHs have data service on their cell phone

▪ Segment with lowest computer ownership


▪ HHs are not planning on purchasing cars



Agriculture workers

|

163

Families have relatively low expenses and sometimes rely on the land for food, thus reporting lower shortfalls than others at the same income level

2. Cash flows


Main income

▪ Weekly salary (50%)– Payment every week – $ 1,800 MXP

▪ Daily salary (21%)– Payment daily; generally day laborers– $140 MXP

Recurrent expenses

▪ Daily– Food

– Transport


▪ Annual– Town fairs and holidays $1,000 - $2,000– Education $2,000 - $5,000– Seasonal agricultural costs depend on

the size of the land they work, and are often covered by Procampo

Sun WedSat Mon Tue FriThu

Week cash flow

Household receives income when work is

available

Households spend very little over the weekend

Most expenses occur daily, with utilities and services paid

every two months or every year

AmountAv. MXP


46%

44%

33%


$126

$47

$340

Agriculture workers

|

164

Sa

vin

gs

Cre

dit

Ins

ura

nc

e


▪ People feel bank accounts are not an option for them; banks are too far away from their communities and, even if they were close, the stores or markets where they usually buy their groceries don’t have POS

▪ Cajas have the highest penetration in this segment, and are highly preferred to other options among those without formal savings

▪ People use consumer credit to buy HH appliances in stores near their communities (usually in installments)

▪ Preference is similar across all credit products, so the relative prevalence of consumer credit likely relates to the availability and affordability of this product

▪ Access to insurance is low in contrast to other segments▪ Though medical insurance is the most common (perhaps

because of Seguro Popular), home and life insurance are more interesting to the uninsured

Households have low financial product penetration, partly due to lack of access and low income levels

3. Product use

“I like that when I save in Compartamos, they agree to pay all my funeral expenses when the time comes”

0%

4%

8%

4%

0%

Other bank account

Credit card

Payroll account

In a caja

Auto

Life

Auto

Home

Medical

Consumer

Mortgage

8%

0%

4%

8%

16%

0%

“I really think I need a loan, but I want to earn more money first to be sure I can pay it”


Agriculture workers

|

165

The informal nature of their jobs motivates people in this segment to save money for emergencies and unplanned events



30

70

No

Yes

Percentage

Bought assets 13%


21%

Saved in abank3 4%


8%


33%

Saved athome

38%



3. Product use




600 MXP

250 MXP

5,000 MXP

500-5,000 MXP

150 MXP

150 MXP

Once a month

Varies: monthly or once a year

Varies: one to 4 times a month

Every three months

Once a month

Once a week

▪ For monthly expenses▪ For an unexpected event









Agriculture workers

|

166

People prefer tandas or cajas because they are forced to save a certain amount and avoid the temptation to spend their cash


Save in a "caja"

25%Save at home

25%

15%Save in a "tanda"


Why is this option preferred? (% of respondents)▪ I feel my money is safe (69%)▪ It’s the most convenient option (23%)▪ I don’t have to pay any fees or commissions (8%)

▪ It’s a safe bet for your money (54%)▪ It’s a very convenient use of savings (23%)▪ It will force me to save money and I like that

(15%)

▪ I know my money will be safe (50%)▪ It’s a convenient option (25%)▪ It will force me to save money and I like that

(13%)▪ It doesn’t charge any type of commissions (13%)

3. Product use Agriculture workers

|

167

~92% of this sector borrowed recently, mostly from family and friends but also from employers and cajas



8

92

No

Yes

Percentage



3. Product use

13%A supplier

17%Pawn shop

Sell an asset 25%

A "caja" 33%

A bank 17%

Your employer 33%


Ask

ed

fo

r a

loa

n f

rom

…

Amount1


~1.3

3.5

~1.9

~0.4

~7.7

N/A

N/A



▪ N/A



▪ Three times in the last year


Agriculture workers

|

168

Use of family and employers for loans is aligned with preferences; but, although pawn shops are preferred, cajas have higher penetration



Pawn shop 15%




▪ Payments are very flexible (54%)▪ It’s the least expensive option available (21%)▪ It’s a safe a and reliable option (13%)

▪ It’s the option that gives us more money to cover expenses we can’t handle at the time (27%)

▪ It’s one of the quickest ways to get money (27%)▪ It’s a safe and reliable way to get money (18%)▪ It’s the cheapest option available (18%)

▪ Employers are flexible with payments (45%)▪ It’s one of the least expensive options (36%)▪ It’s the fastest way to get money (9%)▪ It’s our only choice to get money (9%)

3. Product use Agriculture workers

|

169

Significantly fewer households than in other segments recall facing unplanned expenses



Illness 25%

Top unplanned event Why did you choose this option?





▪ 17% asked their boss or supplier for a loan

▪ “It´s my only choice/ least expensive”/ “I don’t want to owe”


▪ “Flexibility / ease of payment”

AverageExpense

$ 4,780 MXP

Only 33% of households said they had experienced any unplanned expense, while all other segments had 65-75%

3. Product use

The high inherent risk and variability of the agricultural sector might affect households’ perception of risk and emergencies

Agriculture workers

|

170

People in this segment wish they could improve their lifestyle, but are not hopeful of achieving that goal



“I’d like to study and open a shop so I could have a better lifestyle, but for this to happen I’d have to find a winning lottery ticket on the sidewalk!”

“I wish we didn’t have to suffer so much and I could give my children better food, clothing and shelter; but for that to happen my husband would have to work non-stop…”

“I wish my husband could get a better job so I could build a new room and buy more appliances , so my children could have a better place to live”

Agriculture workers

|

171

The segment has fewer plans for the future than any other segment, with ~20% having no expenses planned for the future at all





21%


21%

Buy home appliance

46%

Home improvement

50%

No plans

$ 9,210 MXP

$ 3,620 MXP

$ 6,200 MXP





▪ 40% of Households plan to pay fully with credit



Agriculture workers

|

172

Though education and self-improvement are important aspirations, most of this segment’s efforts are dedicated to their day-to-day survival



Stability of income

Seasonal Expenses

▪ High income volatility is a constant for HHs in this segment. They wish their children could have better jobs, but have difficulty investing in education

Daily Expenses ▪ Relatively few households report shortfalls, but they wish they could afford a more nutritious diet and better lifestyle for their children

▪ Lifestyle of households changes significantly throughout the year, as sources of income and expenses vary from season to season

▪ Main occupation depends heavily on the time of year and weather

▪ Income supplemented by finding short term day-laborer jobs

▪ Majority of income is earned weekly and spent covering daily expenses

▪ Agriculture HHs pay utilities and services in longer periods (once every two, three or six months, annually)

▪ Significant investment required to harvest, Procampo is sometimes paid after or during harvest


“ When I can’t afford to go to the store, I have to go out to the field and look for something to eat ”

Agriculture workers

|

173

Households in this segment are close to mom & pop stores, but relatively far away from other more traditional transaction points

42%

42%

46%

46%

75%

42%

13%

8%

13%

13%

25%

17%

29% 21%ATM

Bank

17%

21% 21%Supermarket

25%

Mom & pops

Conveniencestore

21%21%Cajasde Ahorro

21%25%


▪ Many HHs have to travel to a different town just to get to a bank, so they prefer not to use them


▪ HHs like tianguis as they are cheap and have good variety, but since they’re only available once a week, they rely heavily on Mom and Pop stores for their daily purchases

▪ HHs save in Cajas as they are closer, more accessible

> 60 min

< 15 min. 30-60 min.

15-30 min.


Agriculture workers

|

174

Knowledge about financial institutions based on experience is limited, allowing word of mouth influence perceptions and often leading to mistrust


“I know about the Bansefi/Diconsa caja, yet I prefer saving at home because

that way I can use my money immediately when I need” it

“I have an account in Bansefi through Diconsa stores, I will use it

to save for school expenses but will close it afterwards”


I took a community credit, but still haven’t made my mind up

about it

“I’ve heard of PrendaMax on

the TV but don’t know much about them”

“I had a bad experience with a bank loan. There’s an interesting checkbook account in Banamex, but they have too

many requirements and my money would depreciate in the account”

“I’ve heard that Banco Azteca and Compartamos are the most accessible ones, they

may give me credit if I had the necessary paperwork”

“I’ve never been to one, I heard Banco Azteca has a

high interest rate but lets you pay in a long period… I

couldn’t really afford credit”

I don’t trust group credit, the trickiest one in the

group gets all the benefits

Agriculture workers

|

175

Rural households show the lowest interest in alternate channels, mostly due to limited or no access to these options








Yes

No


75%25%

63%38%

96

4

Supermarket ConvenienceStore

21%29%

Mom &Pop

GasStations

29%29%

▪ Supermarkets are seen as the easiest option to use (43%), convenience stores as the quickest (43%), and Mom and Pops as the nearest (43%)

▪ Safety (50%-69%) is a major concern for detractors,

with supermarkets and convenience stores out of reach for some (28%-24%) and habit playing a part in shaping preferences

▪ Lowest interest in mobile banking of any segment, mainly due to low perception of reliability/safety (43%), difficulty of the system (30%) and lack of access to a mobile phone (13%)

▪ Detractors focus less on personal preference or perception of safety than in most other segments

Agriculture workers

|

176





Agriculture workers contribute ~5% of the national income and represent a limited opportunity for financial institutions to grow their assets



181.4

% of national: 5 %

0.63 % 0.6 %

7.37.7


In banks and cajas

0.3


0.03 %

3.52.6

6.1



1.4 % 0.6 %0.8 %

GROSS ESTIMATE


6. Opportunities


Agriculture workers

|

177


▪ Offer commitment savings plans ▪ Individuals like having a savings discipline. One third of HHs have participated in tandas in the last year



▪ Build a correspondent network for credits

▪ Today many rural communities have access to deposit products through Diconsa stores; however, there are still no correspondent networks offering consumer loans

6. Opportunities

Ne

w p

rod

uc

tsN

ew

pro

du

cts

Savings

Insurance

New channels

Agriculture workers

▪ Offer funeral insurance ▪ Over 40% of HHs interested in acquiring life or funeral insurance, while less than 10% have it today


|

178




Fo

rma

l s

ala

rie

d

wo

rke

rs

Fo

rma

l s

ala

rie

d

wo

rke

rsE

nte

rpre

ne

ur

En

terp

ren

eu

r


Total BOP 29%29% 34%34% 29%29% 8%8%

Financial institutions could capture 120-180 M USD from this segment

17%

22%

7%

6%


29% 46%

31% 41%

34%

39%

9%

9%29% 22%

30% 26%

47%

35%

12%

7%

32%10%

32% 26%

Middle income

Middle income


Middle income

Middle income




▪ 90-120

▪ 220-310

▪ 390-530

▪ 540-750

▪ 560-760

▪ 120-180

1,920-2,6501,920-2,650

Agriculture workers


|

179

179

Agriculture workers

Irene, Abril and her dad

Example of agriculture workers HH profile

|

180

Irene and her family live in a rural community of Pueblaand work in agriculture (1/4)

Who are they?

▪ They are Irene (~30 years old) and her daughter Abril (3 years old)▪ Irene’s husband lives with them and works in agriculture, and when there is no work

he works in the construction business▪ They live in a rural community of Puebla, about an hour away from the Capital of the State

▪ Their home has 2 rooms:▪ The first one has a bed and a dining table▪ In the second room there is a kitchen, and a small living room where they watch TV

▪ Before having their first daughter, they finished their house: they finished the ceiling and installed tiled floors and purchased glasses for their windows

▪ Not being able to provide their children with a lifestyle better than the one they had:– Not being able to provide quality food, so they can

grow healthy and strong– The fact that they might not be able to have a good

education. They would like for them to be able to study beyond “Telesecundaria” (distance, TV-based, secondary education), go to high school or maybe follow a technical career

▪ She aspires for his husband to find a better job:– Stable and permanent– Closer to home– With a better salary

▪ To be able to afford better things:– A refrigerator and more home appliances– Renovate their home, build a new room, so their

children may have a better place to live in

Where do they live?



Agriculture workers

|

181

Papá Mamá AbrilDuerme Duerme

Hace el desayuno JuegaDesayuna Desayuna

Duerme

Está con la familia

Va al molino

Ve TV o juega con alguna vecina

Alimenta animales

Visita a su abuela o ve TV

Juega

Come

Transporte

Trabajo

Hace el quehacer

Visita a su mamá o ve TV

Come

Ve TV y está con Abril

Está con la familia Está con la familia

Noc

he

Duerme Duerme

Cena Cena Cena

Ve TV y está con su mamá

Alimenta animales

Tard

e

Prepara la comida

Mañ

ana

Despierta y se arreglaVa al molino

181

A day with Irene’s family

Irene spends her time doing chores and taking care of Abril, while her husband is at work (2/4)

▪ All days from Monday to Saturday are quite the same at Irene’s home

▪ Only Sunday has a different schedule, because Irene’s husband does not work on Sundays

▪ They use that day to till the land they rent: they sow, weed, fertilize or harvest, depending on the season of the year


Dad Mom AbrilSleeps Sleeps

Prepares breakfast PlaysBreakfast Breakfast

Sleeps

Goes to the mill

Watches TV or playswith a friend in the neighborhood

Feeds livestock

Visits her grandmotheror watches TV

Plays

Lunch

Commuting

Works

House chores

Visits her mother orwatches TV

Lunch

Watches TV and spendstime with Abril

Spends time with his family

Nig

ht

Sleeps Sleeps

Dinner Dinner Dinner

Watches TV and spendstime with her mom

Feeds livestock

After

noon

Prepares and serves lunch

Mor

ning

Wakes up and gets readyGoes to the mill

Spends time with her family

Spends time with her family

Agriculture workers

|

182

182


Irene and her family’s most important flows are weekly, although they also have important expenses on a monthly basis (3/4)

Saturday Sunday Monday Tuesday Wednesday Thursday Friday

Income:▪ The only regular family income is the salary

received for the work done by Irene’s husband▪ On Saturdays, Irene’s husband receives $800 MXP

for the job done during the week

Weekly expenses▪ Commuting $100 MXP▪ Food and home items $300-$400 MXP▪ TV subscription TV $100 MXP▪ Expenses associated to the land they rent ~$100 MXP

Other important sources of income: ▪ Irene has some animals that she tends to and fattens. When somebody is interested, she sells them in order to

earn “a little money that allows me to purchase the things we need”Other important expenses:▪ On a monthly basis, they pay for the potable water consumed (~$10 MXP)▪ On a bi-monthly basis, they have expenses related to the payment of electricity and gas ($200 MXP each one)▪ Additionally, during all the year, they have expenses related to a land they rent to harvest corn. They have to

pay $1,200 annually, only for renting the land ▪ December, January and May are the months with the heaviest expenses because of the expenses associated

to the land and the holidays celebrated during that period

This allows them to save for expenses associated to the land that they rent, for monthly and bi-monthly expenses, as well as for unexpected

expenses

This allows them to save for expenses associated to the land that they rent, for monthly and bi-monthly expenses, as well as for unexpected

expenses


Agriculture workers

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183

183

Behavior

Irene tries to save each week the little money they do not spend, burrowing from people she knows in case of emergencies (4/4)

Planning:▪ Irene and her husband have a planning horizon of months, and even years

– They planned the construction of their home before having a family– Her pregnancy was planned and they saved during the whole year to be able to cover the expenses

associated to the birth of their child– They save a weekly amount for any unexpected situation they might face

“Shortfalls”▪ When savings are not enough, and they might face a “shortfall”, Irene and her family:

– “Use whatever we have”: they sell one of their animals or some of the corn harvested during the past year– They borrow from neighbors and people they know– If needed, and as a last resource, they would go to a pawn shop (they have recently purchased a TV)

Perception and usage of financial services ▪ Banks:

– She has never have gone to a bank: they think that Banco Azteca and Compartamos are more affordable and they have more flexible payment schemes

– She thinks that if she would need a loan she should be able to receive it, but would have to find the documentation to apply for it

▪ Saving banks:– She knows Bansefi (they have access to it from the Diconsa store)– She prefers to keep savings at her home, so she can have immediate access in case she needs it

Channel preferences▪ Market purchases at “tianguis” (local market) once a week. They bundle all their purchases in order to get a better price▪ They do not have a cell phone and would not buy one for making their transactions by cell phone▪ They already use stores such as Diconsa to make their payments. They could be interested in saving there, if they would have

immediate access to their money


Agriculture workers

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184

BACK-UP

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185

Assumptions used to estimate key opportunities (1/2)

Opportunity Assumptions

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▪ Offer commitment savings plans

Savings


▪ Financial institutions could capture a 100% of employer credit with a return rate of:– Scenario 1: 24%– Scenario 2: 37%

▪ Capture a share of supplier credit

▪ Financial institutions could capture a 100% of supplier credit with a return rate of:– Scenario 1: 16%– Scenario 2: 27%

▪ For middle-income formal workers, and middle income entrepreneurs, expand consumer credit

▪ 70 K 3 year auto loans could be sold to formal employers interested in buying a car (~5% of BoP HHs) with an interest rate of:– Scenario 1: 13%– Scenario 2: 18%

▪ 5 K of consumer credit could be sold to all segments interested in it (~19% of BoP HHs) with an interest rate of:– Scenario 1: 13%– Scenario 2: 17%Credit


▪ Financial institutions could capture:– 50% of home savings– 100% of tandas

▪ The return rate they could get out of this money is:– Scenario 1: 4.74%– Scenario 2: 5.14%

Max. annual potential revenuesMillion USD

▪ 120-190

▪ 60-90

▪ 460-630

▪ 720-780

GROSS ESTIMATE


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186

Assumptions used to estimate key opportunities (2/2)


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▪ Offer life insurance ▪ Insurance could be sold to all those BoP HHs interested in it (~30%). The price for each insurance policy could be:– Scenario 1: $190 MXP a year for the head

of the HH– Scenario 2: $455 MXP a year for the

whole familyInsurance

▪ Build networks to offer alternate channels for transactions

▪ All families make one extra transaction a month in correspondents or mobile means to pay for a utility or credit– Scenario 1: 5 pesos per transaction– Scenario 2: 10 pesos per transaction

New channels



▪ Medical insurance could be sold to HHs interested in it for ine member of the HH at a price of:– Scenario 1: ~$800 MXP a year– Scenario 2: ~$1,170 MXP a year

▪ 100-250

▪ 100-200

▪ 360-520

GROSS ESTIMATE

Opportunity Assumptions

Max. annual potential revenuesMillion USD

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187




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Segment

Total BOP

Engaging middle income segments now will be crucial for future growth in higher income segments

Middle income

Middle income


Middle income

Middle income



Total annual 2020 estimated revenuesMillion USD

▪ 168-235

▪ 304-433

▪ 550-751

▪ 824-1,139

▪ 1,090-1,463

▪ 162-249

3,098-4,2713,098-4,271


▪ 7.6%

▪ 3.9%

▪ 3.9%

▪ 4.7%

▪ 7.6%

▪ 3.4%

5.4%5.4%

Estimated CAGR%, 2011-2020

Households leaving the BoPThousands HHs entering higher bracket

2,6732,673

163163

4343

2,0232,023

444444

Share of Revenues% BoP Rev

▪ 5%

▪ 10%

▪ 18%

▪ 27%

▪ 35%

▪ 5%

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Advancing financial inclusion to improve the lives of the poor

www.cgap.org

http://www.themastercardfoundation.com/

financial service needs for mexico’s low income customers

Business

bop segments

bop market

bop source

bop conduct

financial institutions

monthly income

market market research

financial service needs