# E. Bank initiatives to bring the unbanked into the banking system

By necessity, much of financial sector policy over the past decade has focused on restoring the financial health of the banking system. In the 1980s and again in 1994-95, the banking system was subject to severe crises that left it deeply undercapitalized and preoccupied with managing troubled portfolios. At the time of this writing, however, the banking system has made substantial progress toward recovery. In addition, it has changed as many weak domestic banks were been acquired by foreign banks. Nevertheless, as shown in table 24, levels of intermediation have continued to fall. Undoubtedly, the weak state of the banking system over much of the past decade constrained its growth and limited its ability to think about new initiatives.

|**Table 24. B**|**Total Financing**<br>**ank Financing (as**|**Private**<br>**Sector**<br>**Financing**<br><br>**percentage**|**Direct Financing**<br>**(4 - 7)**<br><br>**of GDP)**|**Consumer**<br>**credit**|**Housing**|**Enterprises**<br>|**Non banking**<br>**financial**<br>**intermediaries**|
|---|---|---|---|---|---|---|---|
||**1**|**2**|**3**|**4**|**5**|**6**|**7**|
|**1994**|**44.9**|**43.0**|**43.0**|**3.3**|**7.1**|**30.9**|**1.7**|
|**1995**|**44.3**|**41.7**|**33.8**|**2.2**|**5.5**|**24.6**|**1.5**|
|**1996**|**36.3**|**34.4**|**20.5**|**1.3**|**2.4**|**16.1**|**0.7**|
|**1997**|**31.7**|**29.1**|**15.9**|**1.0**|**2.4**|**12.2**|**0.4**|
|**1998**|**29.7**|**27.3**|**14.3**|**0.8**|**2.0**|**11.1**|**0.4**|
|**1999**|**25.1**|**22.9**|**11.6**|**0.8**|**1.7**|**8.6**|**0.6**|
|**2000**|**20.0**|**18.2**|**9.7**|**0.8**|**1.3**|**7.2**|**0.4**|
|**2001**|**18.5**|**16.4**|**8.8**|**1.0**|**1.0**|**6.2**|**0.6**|
|**2002**|**17.3**|**15.6**|**8.9**|**1.3**|**0.9**|**6.2**|**0.5**|
|**2003***|**17.0**|**14.6**|**8.6**|**1.6**|**0.9**|**5.6**|**0.5**|
|Source: Ban<br>*Up to septe|co de México. Web<br>mber|page January|2004|||||

In recent years, however, banks have introduced new products that could benefit a significant share of the unbanked. Most importantly, 12 of the 45 commercial banks in Mexico City offer payroll debit cards. These cards enable a worker who does not have a traditional deposit account to be paid electronically. The worker can use the card to withdraw funds from an ATM or to purchase goods at a store that accepts debit cards. The card is linked to an electronic account that keeps track of the remaining balance. The account is not a true bank account, however, since the worker cannot make independent deposits into the account or write checks on the account. Bank began to offer these accounts partly in response to pressures from unions, which demanded the cards as a way to reduce insecurity in payments. Reportedly, payroll debit cards have been quite successful among workers, white and blue collar.

The second, and even more interesting initiative, came from a non-bank. A large department store chain, Elektra, with a largely working-class clientele, applied to obtain a banking charter, which the authorities granted. Elektra named its bank “ _Banco Azteca_ ,” and located many of its offices within its department stores. The bank structured its products, both deposit accounts and loans, to meet the needs of moderate- and middle-income households. It makes, for example, small-valued unsecured personal loans, although _Banco Azteca_ levies relatively high interest rates on these loans to make them profitable. _Banco Azteca_ appears to be very successful which could encourage other banks to start serving this market. _Banco Azteca_ opened its first office in 2002. By mid-2003, it had over two million deposit accounts and 836 branches. Undoubtedly, part of the basis for such rapid growth was that the bank could market to households 48