If you are an entrepreneur, you are probably interested in knowing what alternatives exist in business loans. Are you thinking of a bank? We all know that credit is a powerful tool to trigger the economic growth of a region or country.
However, unfortunately, banks in Mexico have performed poorly in terms of financing the economic activities of companies, particularly those of micro, small and medium enterprises (SMEs). In other words: in business loans. The banking sector in Mexico is timid and greedy when it comes to financing the private sector and thereby contributing to the development of the country.
To give us an idea of how fearful banks are in offering business loans, we can take a look at a basic indicator of the World Bank (WB): credit to the private sector with respect to GDP. In simpler words, this indicator tells us how many pesos the bank lends to companies for each peso produced by Mexico.
To give a bit of context to the matter we decided to make three comparisons: Against the 10 largest economies
If we look at the following graph we can realize that in the United States, for example, banks lend to companies 1.92 dollars for every dollar that the country produces, while in Mexico banks lend 30 cents for each peso produced. Financing companies in Mexico against the world’s largest economies. Is it coincidence that the countries that offer the most credit to companies are also the largest economies in the world?
Against Latin America
Let’s make this more interesting with a fairer comparison, let’s see the difference that exists between Mexico and other Latin American countries.
Financing to companies in Mexico against Latin American countries
Once again, if we look at the following graph, we can see that in El Salvador, Guatemala and Peru, for example, companies receive more financing than in Mexico. The data is relevant because we are talking about economies up to 50 times smaller than ours.
Against other countries
And to finish praying we compare the same indicator with other countries that, in appearance, we could suppose would be at a disadvantage in front of us. Financing to companies in Mexico against other countries. We see the reality in the following graph: with respect to its GDP, in Togo and Djibouti companies receive more credit.
SMEs are the heart of the Mexican economy, since they generate 52 percent of GDP and 70 percent of jobs … and despite that they only receive 15 percent of bank credit.
That’s why it’s not uncommon for 50 percent of micro-businesses in Mexico to have the biggest problem with lack of financing. How do they survive? Sad, but true: 64 percent of the credit they receive comes from family savings. The worst of all is that the little financing obtained by SMEs is often expensive, complicated and bureaucratic. Interest rates often stop the growth of productive projects and that money ends up in the pockets of the banks.
This partly explains the fact that the Mexican bank grows its profits at twice the growth of the loans placed each year.
According to figures from the National Banking and Securities Commission (CNBV), in 2013 the profits of banks grew 25 percent, while credit barely increased by 12 percent.
There is no doubt that entrepreneurs and entrepreneurs struggle to increase their assets, generate jobs and boost the development of Mexico. However, the great challenge of financing is a pending issue to be resolved.
While the banks do not fully enter the subject, SMEs will continue to look for other credit alternatives to ensure their operation and growth.