# **Box 2  Thecost of being unbanked can run high for Mexican families**

Rogelio is an informal vendor of candies and other snack foods in downtown Mexico City. He and his wife (who works in a factory) make roughly the same income: 2 minimum wages or **MX$80** per day which tranSCItes to around **MX$2000** a month each. This puts them near the 40<sup>th</sup> percentile of Mexico City’s<sup>1</sup> wage earners. Rogelio’s wife has to make the family’s payments as Rogelio can’t leave his stall unattended for extended periods to go to make payments:

1. _Time and Travel Costs_ .

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- <u>Cashing checks</u> Rogelio’s wife cashes her paycheck twice a month at a bank costing her 4 hours and MX$10 in travel cost.

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- <u>Paying Bills</u> Rogelio’s wife also pays electricity, water and telephone bills during the work week (offices closed on weekends): 7.5 hours of waiting in line and 4.5 hours of travel once a month for all 3 offices for a total of 12 hours lost plus MX$10 in travel cost.

**Yearly Total:** for lost time is **MX$1920 Yearly Total:** for travel cost is **MX$240**

2. _An Informal Loan-_ Typical loan for Rogelio is a month and a half of salary or MX$3000<sup>2</sup> . At most he uses one loan every year for a consumer good. MX$3000 paid in 6 months has a rate of 30% for the period in a Mexican bank in May 2003<sup>3</sup> . The market stall vendor rate is 50% per month. If Rogelio takes 2 months to pay the loan his cost is MX$900 at the bank and MX$3000 through a vendor.

**Yearly Total:** An opportunity cost of  informality of **MX$2100** .

3. _Unrealised Profits -_ Rogelio’s Average Daily Sales are MX$200 and his Average Cost: MX $120. Cost with unrealised 10% discount for buying in bulk with more funds: MX$108. Bulk Buying Profit minus his actual profits amount to MX$92 – MX$80 =MX$12 per day or MX$312 per month (26 days as he works Saturdays).

**Yearly Total:** An unrealized Profit of **MX$3744** .

4. _Loss of Interest on Savings_ . Assume Rogelio saves one month of his salary per year under the mattress. A bank’s minimum interest rate in 2003 is 1% per year. If Rogelio had savings in Banco Azteca’s time deposit account with a one month term then the interest rate would be 5% per year in 2003. Saving in a tanda for 3 separate terms (each time he saves MX$2000) will give him enough for the opening balance (MX$5000 assuming he is able to put away this large sum of money). His lost interest earnings would be:

**Yearly Total:** Keeping just the minimum balance, yearly interest would pay **MX$250** that he would not get in a tanda.

Adding this up implies a **Yearly Cost of: MX$7254 for Being Unbanked** . This is equivalent to nearly two full month’s income for Rogelio’s family or **around 15% of their total annual household income** .

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1. Income distribution in Mexico City is higher than in the rest of the country.   Thus on a national level Rogelio’s family would be higher on the income distribution scale. Therefore the costs of being  unbanked for a family of median income on a national scale are likely to be a greater as a percentage of total family income.

2. As a point of comparison, Bital and Bancomer banks offer credit limits at 3 months of income for their lower income clients (e.g. Anticipo de Nomina Bital).

3. See Banamex.com _Source: Solo et. al., 2003_ 47