Making a difference in Mexico: the value of investing in SMEs
10 October 2018 Financial inclusion is Oikocredit’s largest priority sector. Through Oikocredit’s updated strategy the cooperative aims to deepen its engagement with its microfinance partners while also seeking partners beyond traditional financial institutions. Oikocredit is increasingly aiming to make an impact for the ‘missing middle’ by targeting finance to small to medium enterprises (SMEs) – like it is doing in Mexico.
In Mexico, lack of financing remains a key obstacle to growth for small to medium enterprises (SMEs).
SMEs have the potential to generate both economic and social returns in the country on a large scale. Despite this, lower interest rates drive potential finance away from SMEs, leading traditional lenders such as mainstream banks to focus their financing on big corporations or consumer lending.
Carlos Rius, Country Manager of Oikocredit’s Mexico office, says: “Our office estimates that there are some 4 million SMEs in Mexico whose outputs contribute 50% of the country’s GDP. More importantly, they generate 70% of total employment in the country. This is where Oikocredit can help.”
Focusing on SMEs for social impact
In response to the lack of access to finance faced by SMEs in Mexico, Oikocredit’s Mexico office is working to build a significant portfolio of SMEs, both through direct lending and via financial institutions that support SMEs.
The benefits are twofold. In addition to generating employment and jobs, SMEs can have a positive social impact for their workers by addressing issues such as labour health and safety, workers’ benefits, and work satisfaction.
The SMEs that Oikocredit and most of its partners support in Mexico are formal enterprises, meaning their workers are officially employed and protected. Because these SMEs are registered, they comply with labour laws and regulations which safeguard and promote workers’ health and benefits. For example, there is a set minimum wage and Mexican law mandates that all businesses must share 10% of net profit between workers and employees. This is significant in Mexico where nearly 60% of workers are informally employed.
Taken together, these elements help SMEs generate a sustainable social impact that benefits both workers and businesses: job security with living wages, good working conditions and the improvement of communities through government action funded by taxes.
Oikocredit’s partners are making a difference
Oikocredit partners with a range of financial institutions in Mexico that support SMEs.
Oikocredit partner Financiera Emprendedores is a non-banking financial institution that finances SMEs through key partnerships with the Chamber of Commerce. Going further still, Oikocredit partner Financiera Sustentable is also involved directly in the value chain of natural gas vehicles, achieving a positive triple bottom line.
Oikocredit also supports credit unions that provide access to finance for member SMEs. For example, Unión De Crédito General supports SMEs in regional areas, and Unión de Crédito Concreces supports SMEs in disadvantaged areas of Mexico.
Oikocredit’s work with SMEs in Mexico also helps partners and their clients to prioritise social performance and environmental awareness.
Ging Ledesma, Oikocredit’s Director of Investor Relations, Social Performance & Capacity Building, says: “We are seeing more and more SME partners who are keen to use social performance monitoring to tell people about the work they do, and the social impact achieved by their work. It adds real value to their business, in more ways than one.”
You can read more about Oikocredit’s updated strategy here.
