Recently, there has been renewed interest in financial inclusion as an important component of broadening economic opportunity for those living in poverty. Financial inclusion was incorporated as part of the United Nations Sustainable Development Goals (SDG) for 2030: The SDG consider that an important target over the next decade is a substantive increase in access to banking, insurance, and a wide array of financial services for marginalized populations.
This issue brief explores financial inclusion in Mexico by answering the following questions:
- What is financial inclusion?
- Why is it important?
- What are some real-world examples?
- How is Mexico faring in this regard?
Defining Financial Inclusion
Financial inclusion is described as the promotion of affordable and adequate access to a range of financial products and services, and the expansion of their regulated use by all segments of society through the implementation of personalized and innovative actions that include financial knowledge and education to promote well-being as well as economic and social inclusion (OECD International Network on Financial Education 2012). In brief, there are three elements by which financial inclusion can be measured:
- use, and
- quality of products and financial services.
Importance of Financial Inclusion
Financial inclusion has been recognized as a key instrument to enhance economic growth in general and social empowerment among the most vulnerable sectors of a society. There are multiple studies showing the benefits that come with increased financial inclusion, such as business expansion, an increase in total economic activity, and the reduction of poverty and economic inequality. Evidence from empirical economics literature showing that financial inclusion leads to a reduction in levels of poverty and income inequality is found in Beck, Demirgüc-Kunt, and Levine (2004) and in Honahan (2004), for example. It has also been established that financial intermediation has a positive and long-term effect on growth and productivity, physical capital accumulation, and savings, as demonstrated by Beck, Levine, and Loayza (2000).
Conversely, lack of access to and low use of financial products and services negatively affect individuals and businesses. Regarding the latter, there is evidence that companies, especially smaller ones, show lower growth rates when they face restrictions on access to credit. Without more inclusive financial systems, these businesses and small companies are limited because they often cannot obtain collateral guarantees, lack credit history and connections, and may only have access to their own savings and profits to use for expansion (Beck, Demirgüc-Kunt, and Honohan 2009).
The Benefits of Greater Financial Inclusion: Two Examples
A more inclusive financial system can strengthen economic and commercial relationships, as the following two examples show.
Effects of Remittances Increased
While remittances drive economic growth in developing countries, they have greater effect if the system used to make the financial transfer takes into account the needs of both the senders and recipients of these transfers. For example, recipients frequently face credit constraints because they lack collateral, which then blocks their path toward economic growth. When recipients are able to access credit more easily, this reinforces saving and encourages the design of financial products that better meet their needs (Giuliano and Ruiz-Arranz 2009; Aggarwal, Demirgüç-Kunt, and Martinez Pería 2011). For example, an experiment carried out in Guatemala shows that linking financial products to remittances increased access to credit, increased recipients’ money and assets, as well as improving the design of the products offered (Grell Azar, 2010). Also, financial inclusion empowers individual recipients by reducing transaction costs and transforming remittance flows into productive assets (Mashayekhi 2015).
Farmers’ Resilience Increased
Access to Credit. Financial inclusion — in particular, access to credit — increases the resilience of people working in the primary sector and has positive effects on their welfare. When commodity prices fluctuate or adverse weather conditions ruin crops, access to financial products and services like insurance reduces the negative impacts on famers’ income. Decreasing the long-term impact of such adversities avoids farmers having to sell productive assets to cover unforeseen expenses. In this instance, financial inclusion reduces the possibility of farmers being forced into poverty when they encounter unexpected or adverse conditions (Park and Mercado 2015).
Ability to Save. In the same vein, financial inclusion also increases the likelihood of rural producers being able to put aside savings. Given that most farmers are not wealthy, their access to formal savings is limited by transaction and information costs, social constraints, and even biased behavior by bankers, and their staff (Karlan, Ratan, and Zinman 2014; Efobi, Beecroft, and Osabuohien 2014). An example of a social constraint is seen in the way rural families and kin networks offer financial support; this can reinforce farmers’ lack of desire to commit to savings.
Effects of Access to Capital. Lack of access to capital also affects primary producers’ abilities to obtain productive assets and technical advice. This in turn prevents them from becoming suppliers to larger companies (Richter 2011), so insufficient resources hinder the integration of small producers into larger value chains. Ensuring farmers’ integration into the financial system has a positive impact on their productivity and their ability to increase the size of their production units, and also improves their living conditions in the longer run (Fries and Akin 2004).
Financial Inclusion in Mexico
National Survey of Financial Inclusion
Given the benefits of financial inclusion, many governments and institutions want to gather statistics and ways to measure it. Starting in 2012, the Mexican government launched the National Survey of Financial Inclusion (Encuesta Nacional de Inclusión Financiera, ENIF) to build statistics on financial inclusion. This survey is done every three years by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, CNBV), in coordination with the Secretary of the Treasury (Secretaría de Hacienda y Crédito Público, SHCP) and the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía, INEGI). The survey records socioeconomic characteristics and a variety of data including individuals’ savings, expenditures, credit, insurance, pensions, and use of remittance products, as well as the financial channels and services used.
The most recent version of the survey was in 2021. At that stage, 57% of men and 43.9% women indicated they had a bank account, which meant that most of them have a current account and use a debit card to withdraw from it (43.4% of men and 30% of women). Only 14.9% of men and 2.4% of women had a savings account. These statistics indicate a rather low penetration of the financial system in the general population.
A Financial Inclusion Index for Mexico
Financial inclusion covers more than the elements discussed above. Because of this, and to address the Mexican situation more comprehensively, López Cabrera, Villarreal, and Cardoso López (2023, forthcoming) developed a financial inclusion index to measure all dimensions of financial inclusion in a single statistic. The financial inclusion index uses a principal component technique to reduce financial inclusion dimensions like access (current and savings accounts, debits and credits cards, ATM, etc.), use (e.g., saving in a bank account, using credit, insurance), and quality (e.g., budget planning, filing a complaint in the financial system). This statistical technique transforms a set of correlated variables into a new set of uncorrelated variables, called components. The new set of variables contains most of the variance of the original variables, but is uncorrelated to the original.
The results indicate that most of the Mexican population have only limited financial inclusion. The results also show that the dimension that contributes the most to the robustness of the index is access, while the furthest behind is quality in products and services. This shows that the diversification of access channels can boost levels of financial inclusion, but it does not guarantee the quality of financial services. For that, other specific policies need to be put in place. That is, there is a significant challenge to encourage the use of the financial products and services to which there is access to strengthen the capacities of the users of financial services and to improve the design of the products so that they adequately adjust to their needs.
Index Results Show Disparities
Comparing the results of the index by gender, region, size of town, and employment status leads to a number of important findings.
Gender Disparities. Men have greater financial inclusion than women. This gender disparity requires additional, targeted policies to understand and address why women lag behind men. Clearly, there is a need to develop financial products and services that consider the complex social characteristics that surround women, including social norms (like credit constraints because they don’t possess land titles) that might impede their participation in the financial system.
Regional Disparities. As for regional differences, financial inclusion is most robust in Mexico City, the northeast, and the northwest regions of the country. This calls for a strategy that considers the conditions of regions where the index shows lower inclusion. Nation-wide policies will not do.
Urban/Rural Disparities. The index also shows an urban-rural divide in financial inclusion. Towns with more than 100,000 inhabitants and working individuals have greater financial inclusion than smaller, rural communities. Therefore, policies will need to address the conditions of smaller communities in Mexico.
In the case of less developed areas, as well as smaller towns, the challenge is to innovate and develop financial products and services that are available where the people live, instead of requiring travel to more developed areas. Technology could help, especially telephone banking and services that use available online platforms where mortar-and-brick facilities are hard to find. Now banks’ digital platforms give individuals the ability to conduct banking and financial transactions entirely online — they no longer need to visit a physical location of a financial institution.
Other Factors Affecting Financial Inclusion
- At the individual level, there is no clear relationship between age and the level of financial inclusion.
- Marital status has a negative effect — those who are married have worse financial inclusion than unmarried individuals.
- Being the household head, having a smaller number of dependents, and higher education levels all favor increased financial inclusion.
- A positive association is also observed between financial inclusion and a greater diversity of financial products, which reinforces the idea that design innovation and more financial products and services will increase financial inclusion.
The National Survey of Financial Inclusion results demonstrate that Mexico must develop and implement nuanced strategies of financial inclusion to bridge the three significant disparities — the gender gap, geographic disadvantages, and the urban-rural divide. There is no one-size-fits-all solution. Without targeted strategies, Mexico and its people will continue to suffer from the negative effects of financial exclusion.
Aggarwal, Reena, Asli Demirgüç-Kunt, and Maria Soledad Martínez Pería. 2011. “Do remittances promote financial development?” Journal of Development Economics 96(2): 255–264. https://doi.org/10.1016/j.jdeveco.2010.10.005.
Beck, Thorsten, Asli Demirgüç-Kunt, and Ross Levine. “Finance, Inequality, and Poverty: Cross-Country Evidence” NBER Working Paper Series 10979. December 2004. Cambridge, MA: National Bureau of Economic Research. https://doi.org/10.3386/w10979.
Beck, Thorsten, Asli Demirgüc-Kunt, and Patrick Honohan. 2009. “Access to Financial Services: Measurement, Impact, and Policies.” World Bank Research Observer 24(1): 119–145. https://doi.org/10.1093/wbro/lkn008.
Beck, Thorsten, Ross Levine, and Norman Loayza. 2000. “Finance and the sources of growth.” Journal of Financial Economics 58(1–2): 261–300. https://doi.org/10.1016/S0304-405X(00)00072-6.
Efobi, Uchenna, Ibukun Beecroft and Evans Osabuohien. 2014. “Access to and use of bank services in Nigeria: Micro-econometric evidence.” Review of Development Finance 4(2): 104–114. https://doi.org/10.1016/j.rdf.2014.05.002.
Fries, Robert and Banu Akin, B. 2004. “Value Chains and Their Significance for Addressing the Rural Finance Challenge.” USAID Accelerated Microenterprise Advancement Project Microreport No. 20. https://pdf.usaid.gov/pdf_docs/Pnadi913.pdf.
Grell Azar, Stephanie. 2010. “FIELD Brief 5: Integrating Remittance Recipients into the Financial Sector.” FHI 360. https://www.marketlinks.org/resources/field-brief-5-integrating-remittance-recipients-financial-sector.
Giuliano, Paola and Marta Ruiz-Arranz. 2009. “Remittances, financial development, and growth.” Journal of Development Economics 90(1):144–152. https://doi.org/10.1016/j.jdeveco.2008.10.005.
Honohan, Patrick. 2004. “Financial Development, Growth, and Poverty: How Close are the Links?” World Bank Policy Research Working Paper WPS3203. Washington, D.C.: The World Bank. https://dx.doi.org/10.1057/9780230374270_1.
Karlan, Dean, Aishwarya Lakshmi Ratan, and Jonathan Zinman. 2014. “Savings by and for the Poor: A Research Review and Agenda.” Review of Income and Wealth 60(1): 36–78. https://doi.org/10.1111/roiw.12101.
López Cabrera, Jesús Antonio, Francisco Gabriel Villarreal, and Diego Cardoso López. “A measurement proposal of financial inclusion in Mexico.” Mexican Journal of Economics and Finance 18(3): 1–41. https://doi.org/10.21919/remef.v18i3.889.
Mashayekhi, Mina. 2014. “Remittances and financial inclusion.” Presented at Thirteenth Coordination Meeting on International Migration, New York, NY, 12–13 February, 2015. United Nations Conference on Trade and Development (UNCTAD). https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/unpd-cm13-201502-mina_mashayekhi_org-of-work.pdf.
OECD International Network on Financial Education. 2012. High-Level Principles on National Strategies for Financial Education. Paris, France: OECD. https://www.oecd.org/finance/financial-education/OECD-INFE-Principles-National-Strategies-Financial-Education.pdf.
Park, Cyn-Young and Rogelio Mercado Jr. 2015. “Financial Inclusion, Poverty, and Income Inequality in Developing Asia.” ADB Economics Working Paper Series 426. Manila, Philippines: Asian Development Bank. https://www.adb.org/sites/default/files/publication/153143/ewp-426.pdf.
Richter, Patricia. 2011. “Empowering rural communities through financial inclusion.” Geneva, Switzerland: International Labour Office. https://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_159004.pdf.
 Empirical research is defined “as any study whose conclusions are exclusively derived from concrete, verifiable evidence” (see https://research.com/research/what-is-empirical-research) and empirical economics is therefore “the branch of economics that uses data from reality to contrast or propose theories” (see https://www.definebusinessterms.com/empirical-knowledge/).
 A financial intermediary “is an entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment bank, mutual fund, or pension fund.” https://www.investopedia.com/terms/f/financialintermediary.asp.
 A value chain refers to “the full lifecycle of a product or process, including material sourcing, production, consumption and disposal/recycling processes.” https://www.cisl.cam.ac.uk/education/graduate-study/pgcerts/value-chain-defs#.
 Using data from the Mexican National Financial Inclusion Survey (ENIF), 2015, 2018 and 2021 editions.
 For a brief description of principal component analysis, see https://builtin.com/data-science/step-step-explanation-principal-component-analysis.
 A word about future development of the index itself is merited. Future indices must build in the availability of considerably more sophisticated financial instruments and understand how they impact social inclusion as a broader concept of individual and national development.