Welcome to our market overview series, a concise analysis of global economic markets, with a focus on the world of alternative lending. Through these overviews, we aim to unearth investment opportunities, and spotlight the challenges that mold each unique economic landscape.
In this Market Overview, we focus on the multi-faceted Mexican market, unveiling opportunities present in the sector and its potential for growth.
A flourishing economy and remarkable growth
Nestled between the United States and Central America, Mexico is a vibrant nation home to over 130 million people. As the 11th largest economy in the world, Mexico’s GDP crosses the $1 trillion mark.1 Mexico has made notable progress in addressing income inequality, as evidenced by the steady decline of its Gini coefficient, which stands at 45.4 as of 2020.2
Since NAFTA’s implementation in 1994, Mexico has undergone a remarkable transformation. NAFTA has enabled Mexico to diversify its economy away from oil, boosting exports to the US, and promoting growth in sectors such as auto manufacturing and agriculture, leading to a more balanced and resilient economic landscape.3
A significant portion of Mexico’s trade occurs with its North American partners, the US, and Canada (with exports valued at $386 billion and $12.9 billion respectively), followed by Germany, then China.4 5
Despite the challenges posed by the COVID-19 pandemic and global economic trends, Mexico’s economy grew by 3.1% in 2022. This is a testament to the success of the country’s forward-looking approach to economic development, which has helped it weather the impacts of the pandemic.6
Mexico is the 10th most populous country, yet it faces a significant challenge of financial exclusion due to a high prevalence of cash usage. A proportion of the population is classified as underbanked, resulting in limited or no access to financial services offered by the banks.8
Only 37% of Mexicans over 15 years old have a bank account, and some 39% of all transaction value in Mexico are in cash. Mexico’s large informal economy, combined with high levels of poverty and income inequality, are some of the factors that contribute to the country’s underbanked status. To address this, fintech and alternative lending solutions can play a crucial role in expanding access to financial services for individuals and small businesses who have historically been excluded from traditional banking.9 10
SOFOMs drive Mexico’s fintech and alternative lending market
SOFOMs (Sociedades Financieras de Objeto Múltiple or Multiple Purpose Financial Companies), are non-bank financial institutions that play a significant role in Mexico’s financial landscape, with over 2 000 entities in operation.
They grant loans, finance leasing, act as a trustee in certain transactions, and provide factoring services, often serving as SMEs first formal credit source– 65% of SME credit requests are fulfilled by SOFOMs.11
The demand for alternative financial solutions has spurred rapid fintech industry growth, with an 18% compound annual growth rate over the last four years. This attracted substantial foreign investment, including over $1 billion from prominent institutions like Goldman Sachs.12 13
Master trusts : Enhancing alternative lending
Mexico’s alternative lending landscape utilizes innovative financial instruments like master trusts to streamline the securitization process and substantially improve creditors’ protection, who can avoid risks related to the funded claims.
Upon financing, the lender transfers the claim or collection rights to the master trusts, notifying the creditor as a beneficiary. This notification is irrevocable and is stronger than a pledge over the portfolio, as the master trust collects all the borrower payments and has already reassigned the title. In case of the lending company’s default, upon notice, the title is forwarded to the creditor, whereas the pledge would need to be executed in court.
By leveraging this innovative financial instrument, lending companies in Mexico have been able to expand their reach and drive the impressive growth of the nation’s alternative lending market.
A rapidly emerging loan portfolio
With significant growth in lending activity in Mexico in recent years, a total of €40.7 million was invested in Notes and claims on Mintos in 2022 and Q1 of 2023. As more individuals and businesses seek alternative funding sources, the alternative lending market in Mexico is poised to become an integral part of the country’s economic development.
Although credit cards remain popular, short-term loans are the most popular alternative lending product in Mexico, with government jobs opening doors to payroll loans.
In Mexico, it’s common for individuals to aspire to work for a federal agency or government, as these jobs offer stability and a reliable source of income. Such jobs provide the opportunity to qualify for payroll loans, which are commonly used to cover daily living expenses and family care.
Public sector jobs in Mexico typically offer retirement pensions backed by the federal or state government, and lenders often have contracts with employers such as hospitals and schools.
This setup benefits lenders and retail investors as repayments are predictable, with loan repayments being deducted directly from the borrower’s salary or pension. Consequently, the lender always receives payment first, as long as the borrower continues to receive salary or pension.
In addition to the investment opportunities in payroll loans for governmental institutions and direct debit personal loans, Mintos also offers other types of loans such as business loans, group loans, health-care loans and car loans.
Lending Company
Average Interest for Notes Available %
Notes available for investment
Trust set-up
Comments
A bright outlook for Mexico’s alternative lending scene
Mexico is very different from the European markets. With problems such as financial exclusion, entering the Mexican lending space often comes with its challenges for foreign lending companies.
With this in mind, Mexico’s alternative lending market is expected to play a crucial role in fostering financial inclusion and driving economic growth, as it continues to navigate the complexities of the global economy and address domestic challenges.
As many foreign companies have adapted well, and we see an ever-increasing demand for funding also from local lenders, we expect to onboard even more Mexican lending companies to Mintos in the future.
If you’re interested in exploring investment opportunities within this burgeoning market, consider Mexico’s leading lending companies on Mintos.
1 Mexico Indicators, Trading Economics (Accessed April 2023)
2 ibid.
3 NAFTA and the USMCA: Weighing the Impact of North American Trade, Council on Foreign Relations (Accessed April 2023)
4 Mexico Exports to United States, Trading Economics (Accessed April 2023)
5 Mexico Exports to Canada, Trading Economics (Accessed April 2023)
6 The World Bank in Mexico, The World Bank (Accessed April 2023)
7 ibid.
8 ibid.
9 Financial Inclusion Data/Global Findex, The World Bank (Accessed April 2023)
10 The Global Payments Report 2023, FIS (Accessed April 2023)
11 Las Sociedades Financieras de Objeto Múltiple o SOFOMES en México, Metricas (Accessed April 2023)
12 Fintech Xepelin Gets $140 from Goldman Sachs to Finance a Mexico Expansion, Bloomberg Línea (Accessed April 2023)
13 Finnovista Fintech Radar Mexico 2023, Finnovista (Accessed April 2023)
