USAID CBJ FY 2002: Mexico

Summary: The number of Mexicans living below the poverty line is estimated at 50 million -- half the population. An estimated 60% drop in real wages since the 1995 peso devaluation, plus insufficient new job creation, is driving rising migration within Mexico and to other countries, such as the United States. A substantial increase in unsalaried employment since 1995 shows that microenterprise is a significant source of income for poor Mexicans. Mexico's new president, Vicente Fox, has announced that support for the under-served microenterprise sector will be a high priority of his administration's policy to alleviate poverty.

Strengthening the weak microenterprise financial institutional (MFI) system will expand access to credit. Credit access will help microentrepreneurs start or expand businesses and generate income and new employment to relieve some of the economic pressures behind migration. In addition, helping rural people adopt more viable income-earning alternatives to destructive land-use patterns, and/or adopt more energy-efficient technologies will help USAID meet its biodiversity conservation and greenhouse gas reduction goals.

Key Results: To strengthen the financial institutional base needed to stimulate greater microenterprise growth, activities are focused on the following goals: 1) increasing understanding of constraints to microenterprise growth among MFIs and other service providers, and organizing collaborative Mexican initiatives to address those constraints; 2) strengthening MFI management and capitalization in order to increase access to credit and financial services; 3) increasing the Government of Mexico's (GOM) understanding of the role of microenterprise in the national economy; 4) identifying high out-migration areas where improved microenterprise financial services are needed; 5) developing model programs that provide services to rural microentrepreneurs in support of USAID's environmental and energy activities; and 6) assisting MFIs in accessing credit bureau services to reduce their risks and operating costs.

Performance and Prospects: USAID identified the lack of a legal/regulatory framework as a key constraint to sustainable growth of MFIs; however, serious work on such a framework could not begin until President Fox took office in December 2000. A Mexican Working Group (MWG) was formed to provide policy guidance for a microenterprise implementation strategy. USAID is working intensively with the MWG, MFI partners, and Mexican authorities to recommend structures and changes that will strengthen this framework.

Two Development Credit Authority (DCA) guarantee agreements were signed on February 20, 2001. One agreement guarantees $2 million for a partner MFI to make new loans, and the other guarantees a $1 million loan from a U.S. bank (Wells Fargo) to another partner MFI for increased lending. The DCA guarantees, the first ever for Mexico, will help increase the capital available for microenterprise lending. Special studies are underway at two Mexican universities to identify high out-migration areas that need improved microenterprise financial support services.

Allocation of FY 2001 funds is roughly as follows: $300,000 in PRIME grant funds for short-term technical assistance to strengthen financial management in USAID's partner MFIs; $200,000 for technical assistance to draft new savings and credit legislation that will bring supervision and regulation to the microfinance sector; $100,000 to complete special studies of microenterprise needs in high out-migration areas; $40,000 to identify institutions to deliver credit to rural, environmentally-related microenterprises; and $360,000 in technical assistance to create and test a new microenterprise financial management training curriculum and to assist MFIs in developing business plans and financial services for an expanded clientele.

Planned allocation of FY 2002 funds is for $700,000 technical assistance to develop models for delivering financial services to microenterprises in environmental protection areas and areas of high out-migration, to assist the GOM in drafting new regulations on savings and credit, and to assist partner MFIs in transforming operations to comply with those new regulations.

Possible Adjustments to Plans: The microenterprise finance sector is undergoing major changes due to President Fox's promotion of microenterprise. Policy decisions evolving from current work on a legal/regulatory framework for MFIs will determine whether USAID's goals can be met and whether Mexican MFIs can achieve self-sustaining growth. USAID plans to provide more short-term technical advisors to carry out additional activities.

Initial results from the special migration-microenterprise studies point to a relationship between local availability of economic opportunity through microenterprise and decisions to migrate. The studies should produce data by summer 2001 that will identify areas of high out-migration and their specific microenterprise financial services needs. USAID plans to develop models for extending microenterprise financial services to selected high out-migration areas based on the study findings.

Other Donor Programs: USAID is monitoring a recent Inter-American Development Bank (IDB) loan to Mexico's National Development Bank, of which $500,000 supports microenterprise. As the opportunity arises, USAID will informally provide technical and policy advice to the GOM's Economic and Commerce Secretariat on implementation of President Fox's recent directive to create a public sector microenterprise finance fund. USAID will monitor two small, experimental projects funded by other bilateral donors, to determine whether a model is emerging for cost-effective business training for microentrepreneurs. USAID will provide informal assistance to disseminate the model, if appropriate. USAID will collaborate with the Ford Foundation, building on prior IDB and World Bank work, to develop an inventory of local organizations working in rural areas. The purpose will be to identify organizations that could form part of a future core group of rural microenterprise support institutions. USAID will also consult informally with the World Bank on President Fox's directive to convert the National Savings Program into a microenterprise lending bank.

Principal Contractors, Grantees or Agencies: U.S. contractors include Chemonics International, which provides technical assistance and program management. Day-to-day coordination of the Mexican Working Group's activities is handled by Pro Desarrollo (a local non-governmental organization) and two Mexican universities carry out the special microenterprise-migration studies.

Mexico 523-009

U.S. Financing

(In thousands of dollars)

	Obligations		Expenditures		Unliquidated
Through September 30, 1999	0	DA	0	DA	0	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	INL	0	INL	0	INL
	0	DFA	0	DFA	0	DFA
Fiscal Year 2000	470	DA	0	DA
	0	CSD	0	CSD
	0	ESF	0	ESF
	0	SEED	0	SEED
	0	INL	0	INL
	0	DFA	0	DFA
Through September 30, 2000	470	DA	0	DA	470	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	INL	0	INL	0	INL
	0	DFA	0	DFA	0	DFA
Prior Year Unobligated Funds	67	DA
	0	CSD
	0	ESF
	0	SEED
	0	INL
	0	DFA
Planned Fiscal Year 2001 NOA	1,000	DA
	0	CSD
	0	ESF
	0	SEED
	0	INL
	0	DFA
Total Planned Fiscal Year 2001	1,067	DA
	0	CSD
	0	ESF
	0	SEED
	0	INL
	0	DFA
			Future Obligations		Est. Total Cost
Proposed Fiscal Year 2002 NOA	700	DA	0	DA	2,237	DA
	0	CSD	0	CSD	0	CSD
	0	ESF	0	ESF	0	ESF
	0	SEED	0	SEED	0	SEED
	0	INL	0	FSA	0	FSA
	0	DFA	0	DFA	0	DFA

Mexico

Activity Data Sheet

Mexico 523-009

U.S. Financing