Metafinanciera (Meta) empowers micro-entrepreneurs in Mexico with access to fair and honest credit. Since 2018, the financial technology (fintech) company has provided solidarity group loans to women in underserved communities across Mexico, helping them grow their businesses.
More than 36 million Mexican businesses say limited access to capital is their #1 problem, according to 2021 data. Many entrepreneurs cite low confidence in traditional financial systems, leaving 66% of the market to be served by informal lenders. As a result, over 90% of these transactions are in cash; lenders often employ predatory tactics; and borrowers lack the built-in protections of the financial system. Meta believes there’s a better way.
What is a solidarity group loan and how does it work?
Solidarity groups consist of approximately eight women who meet weekly to collect their payments. The loan is given to, and repaid by, the group. Thus, if one woman is unable to pay her loan balance, the others help make up the difference to assure the total amount due is paid.
This approach minimizes risk and is an evolution of the concepts pioneered by Mohammad Yunus at Grameen Bank. It enables Meta to provide loans to borrowers with limited financial data or relationships with traditional banking institutions, helping to grow the Mexican economy from the ground up.
Investors find microloans attractive because they align investment and social welfare. The well-being of the borrower and the lender are inextricably linked to one another and the communities they serve. As such, successful microcredit can drive financial independence and prosperity for individuals, families and communities.
A deliberate focus on financing women-owned enterprises
In Mexico, as in other countries, women are at the heart of every community. Yet their contributions are often underrated or curtailed by societal structures, hindering not only their own growth but the growth of their families and the broader economy. Microfinance is a well-established, powerful tool for empowering women.
With microcredit loans, women can expand their business, becoming self-sufficient and financially independent. They are better able to educate and provide healthcare for their children, which creates a profound, positive effect that ripples through future generations. The benefits extend well beyond an individual family: as these women expand their businesses, they also raise their communities through local hiring and local spending.
Meta’s founder Mario Carlos Saldivar understands the need for and power of microfinance first hand. After losing his father at a young age, he helped his mother provide for the family by working in her local flower shop. As such, he had an up-close view of her struggles and limited access to financial resources. After a trip to Spain where he saw the promise of digitization in the banking sector, Mario was among the first to bring this technology to Mexico. His companies were responsible for building most of the technological infrastructure for many of the major banks in the country. Now, this same banking and technology expertise is being used to modernize microlending.
The Metafinanciera difference
Since inception in 2018, Meta has steadily gained market share with competitive rates, innovative technology, and an alternative due diligence process that is well-suited to their unique borrower population.
While there are other lenders, they generally do not focus on this market. Microcredit requires a very hands-on, human management style of lending. Lenders may need to look beyond traditional lending criteria or financials, which may not be available, and use alternative data to evaluate the risk of any particular investment. Technology can help bring efficiency to the process, but traditional financial institutions have generally not created or adapted services to this large and underserved market. As a result, many deserving borrowers have been left behind.
Meta provides the most accessible and digitized platform in the market, with a user-friendly mobile app backed by innovative technology that delivers additional security and features to its clients. As more people shift their banking activities online – a trend accelerated by the COVID-19 pandemic – Meta’s streamlined onboarding and tools remain attractive to prospective borrowers. For underwriters and investors, Meta’s monitoring processes provide the necessary data to make confident lending decisions.
Trends to watch
As a leading provider of equitable credit, Meta sees substantial opportunity in this market. Established or traditional financial institutions focus only on a limited number of borrowers, creating a void in serving unbanked small business owners. With 65M Mexicans among the unbanked, Meta believes there’s a potential market opportunity of more than USD $14,000M.
Looking at the next 12-18 months, Meta is watching several notable lending trends in Mexico:
- Digitalization – more digital channels and expanded online banking are driving broader acceptance and use of digital tools.
- Competition – with new players entering the lending market and established institutions expanding their offerings, borrowers have access to lower interest rates and better terms. Yet, as previously noted, a substantial population is being left out – creating opportunity for Meta.
- Small business focus – Mexican banks and government interests are expanding their lending to small and medium-sized enterprises which historically had limited access to credit. A national credit bureau is improving credit assessment and risk management, providing better and more consistent data.
- More diverse lending products – Mexican banks are introducing auto loans and specialized products such as loans for renewable energy projects, in addition to personal loans and mortgages.
- Responsible lending – financial institutions and government regulations are working to eliminate predatory lending practices, providing loans at fairer terms which borrowers are able to repay.
Meta’s own business practices reflect these trends. They are a technology leader within the microcredit sector and deeply committed to fairness and equity in lending. Their solidarity group loans enable smaller operations to access capital while reducing the lending risk. Meta also focuses on avoiding credit over-extension, so that borrowers receive the right amount of credit to grow and attain financial security, at fair terms that allow the loans to be repaid. Looking into the future, Meta is modeling and testing new products to help meet the needs of their diverse borrower base and expects to launch a number of new offerings in the next two years.
Metafinanciera and Percent – a beneficial match
Meta and Percent are both focused on increasing access to capital and providing transparency in the borrowing/lending process. Through Percent, Meta can raise capital at competitive rates. This funding can then be lent out via microloans to small women-owned businesses, used to develop new offerings, and expand awareness of Meta’s market and purpose more broadly.
Using Percent’s monitoring and due diligence tools, Meta has gained a better understanding of their own business and identified additional ways to optimize their operations. The independence, experience and perspective provided by the Percent team is helping Meta make more informed decisions. Percent’s investors gain access to more geographically diverse investments and the option to broaden their portfolio to include socially-conscious investing. The partnership is a win-win, especially for the historically undercapitalized women-owned businesses in Mexico.