# G. Popular banks and financial services for lower-income households

In addition to traditional commercial banks and finance companies, the Mexican financial system includes a variety of semi-formal and informal small-scale “popular” banks. Traditionally, these popular banks served moderate-income households, providing both credit and deposit facilities. They were largely unregulated, and many were severely undercapitalized. Most of the popular banks are organized as cooperatives.

In the 1990s, the government recognized that the popular banks could play an important role in serving lower-income households, but it also wanted to limit the risk that these banks created for their depositors and for the financial system. Consequently, the government initiated a series of measures intended to clarify their rules of operations and to bring them into regulatory oversight. Its first step was to broaden financial legislation to bring in the _Cajas de Ahorro Popular_ ; transforming them into regulated _Sociedades de Ahorro y Prestámo_ (savings and loan associations, SAP law 1991). Many savings and credit cooperatives remain ouside that legal framework and promote a new law in 1994 which further segments the sector. The process culminated in 2001, when the Congress enacted the “ _Ley de Ahorro y Crédito Popular_ ” designed to encompass the entire sector and bring it under the supervision of the _Comisión Nacional Bancaria y de Valores_ (CNBV); simultaneously the old National Savings Board ( _Patronato del Ahorro Nacional_ )<sup>17</sup> was transformed into “ _Banco del Ahorro Nacional y Servicios Financieros_ ” (BANSEFI) in order to coordinate the reorganization of all popular financial intermediaries and to serve as development agency for these institutions by implementing (non-credit) support programs intended to ensure that they follow sound banking practices. The main goal of the new legislation is to lend credibility to the popular institutions and to promote healthy financial intermediation among the low- and middle-income groups.

BANSEFI is a descendent of the “ _Patronato del Ahorro Nacional_ ”, commonly identified by its main product the “ _Bonos del Ahorro Nacional_ ” which collected savings but did not make private-sector loans. BANSEFI continues to provide this savings service, but as noted above it also functions as a development bank, or “second floor” bank, to assist and support programs that could help popular banks to increase their income, reduce costs, improve their management, and broaden the services that popular intermediaries could provide to their members. One of the first tasks of BANSEFI was to develop a database on all popular banking institutions. For this purpose in 2002 BANSEFI conducted a census of the entities ( _Entidades de Ahorro y Crédito Popular_ ),<sup>18</sup> including those financial institutions that were not recognized officially by the financial authorities.

Table 26 presents an overview of the results from this census. As shown in the table, the cooperatives with the largest membership are the savings and loan associations ( _Sociedades de Ahorro y Préstamo_ ), which are formally regulated, and the non-regulated savings and loan cooperatives ( _Cooperativas de Ahorro y Prestámo_ ). The third largest membership is that of the _Cajas Solidarias_ . These were originally rural savings institutions which were instituted in a number of

> 17 It continues playing its old role of enhancing the savings culture through its deposit instruments, but does not make privatesector loans as all of its funds are channeled to the public sector.  To enhance its ability to collect funds and increase savings, the institution can offer tax-exempt interest and/or premiums in order to increase savings.

> 18 BANSEFI Diagnóstico de la Situación Financiera, Equipamiento Tecnológico y censo de las Entidades de Ahorro y Crédito Popular (EACP) Informe Versión Pública Junio de 2002.

50