How does your proposed innovation leverage public intervention in catalyzing private SME finance?
túbanco will begin operating as a regulated financial institution enhancingemploying the following alternatives to leverage public intervention:
1. Access to deposits from the general public leveraging the private equity investment to support small business lending (túbanco looks to fund at least 50% of this loan portfolio with savings).
2. Governance will be enforced by the Comision Nacional Bancaria y de Valores (CNBV), the Mexican financial institution regulatory authority.
3. Access to funds from Mexican second tier development banks such as Nacional Financiera (NAFIN), Sociedad Hipotecaria Federal (SHF) and PRONAFIM that are looking for innovative distribution channels to support SMEs in Mexico.
4. Alliances with development and training programs to improve the business abilities of small business owners such as Centros Mexico Emprende, Universities, etc.
What barriers does your proposed solution address?
Asymmetry of information, Informality, Lack of collateral, Lack of financial capacity, Lack of SME access to skills / knowledge / markets, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Lack of financing to women entrepreneurs.
If you checked any of these barriers, describe how your solution addresses them
Lack of competition/incentives for financial intermediaries: In Mexico banks tend to target formal workers and medium and large businesses (6% of the Mexican commercial banking sector’s outstanding loans to non banks are channeled to growing MSMEs) while MFIs are focusing on very small borrowers (maximum loan amounts of approximately USD 1,500). Therefore most of the Mexican SMEs do not have access to appropriate loans to help them grow their businesses.
Lack of financing to women entrepreneurs: Market research has been done and túbanco will provide products specifically designed for the needs of women entrepreneurs, such as single mothers.
Asymmetry of information: Transparency will be a key component of the túbanco business model. Clients will be well-informed with regards to fees (no hidden text) and will be able to access account and loan statement information through the internet, mobile phones, ATMs and a network of agents with Point of Sale (POS) technology. All clients will be able to access information via a call center or Business Center (branch) and túbanco will develop data bases with relevant information regarding small businesses in market sectors.
Informality: Potential clients must have a positive credit history of at least one fully repaid loan with an MFI, at least three employees in their payroll or the intention to hire them and have a sustainable operation with growth potential. Ideally, they have access to mobile phones and the internet.
Lack of collateral: túbanco will implement best practice loan origination and underwriting procedures that will focus on cash flow analysis, rather than collateral for loan approval. Collateral will be used on a selective basis to increase credit lines to selected clients.
Unavailability of financial products tailored to SME needs: túbanco will develop customized solutions oriented to business and family needs through a bundle of products and services, rather than the inflexible product offerings currently available specialy in MFIs.
Lack of institutional capacity of financial intermediaries: túbanco will focus specifically on serving MSEs, a market unserved by the microfinance and commercial banking sectors. túbanco will differentiate itself from other MFIs by developing a professional team, hiring experienced collaborators and developing young professionals who are career driven and with specific skills.
High transaction costs for financial intermediaries to serve SMEs: Approvals will be systematized and streamlined by performing a MSE credit scoring solution complemented by on site analysis. This will allow for more consistent approvals and shorter response times to loan requests. Loan Officers will have the capability to approve loans during site visits using mobile technology and back office processes will be streamlined to maximize efficiency and lower costs. Larger loan sizes will allow túbanco to offer lower rates to clients.
Lack of financial capacity: túbanco will target clients with a credit record that have outgrown the Mexican MFIs’ credit offerings and are too small for commercial banks. The service will build customers' financial capacity with personalized solutions in order to improve their activities.
Lack of SME access to skills: clients will receive advisory as needed or requested in branches, the web and mobile phones. Financial and business development education will be provided through the web and in person seminars both for clients and the community, through partnerships with NGOs and universities.