Theoretically, the financial reform aims to boost greater competition among those companies that provide financial services: enhancing and strengthening development banks; broadening financial products and services for its users; and, ensuring the soundness and prudence of the whole of the financial sector. The Secretariat of Finance estimates that with the financial reform, the internal financing for the private sector as a percentage of the Gross Domestic Product will increase from 25.7% in 2012 to 40% in 2018. On the other hand, the Bank of Mexico claims that the reform can contribute with a 0.5% additional economic growth for 2014. It is evident that, in order to grow, Mexico needs a more dynamic financial sector but, what are the benefits of these reform and who are its more direct beneficiaries?
2014 appears to be a complicated year for Mexico’s industrial sector due to an increase of taxes as a result of the social and financial reform. In addition, due to the long-term nature of the energy reform, the so-called decreasing prices in certain energy products will not arrive in time to compensate the increased taxation. Despite all this and, if implemented, the financial reform can become a true lifesaver for the Mexican industry. Credit expansion and a decided support of the development banks are essential for the industrial sector to absorb the larger fiscal burden without hindering investment projects. Nevertheless, regulation on competitiveness of the financial sector will be very important to ensure access to financing sources, particularly of small and medium enterprises which, despite concentrating 74% of all employees, only get access to 15% of all credit available.
With interest rates that range from 32% to 62% and a total annual cost of between 40% and 113%, credit cards in Mexico are amongst the most expensive in the world. The factors that explain such costs are the oligopolistic control that banks hold over (94.1% of payroll portfolios is concentrated between five banks), a deficient assessment regarding the clients’ default risk as well as an increase on overdue portfolios. For these reasons, the financial reform aims to decrease the banking interest rates using efficiency schemes. The creation of specialized juries and the prompt activation of guarantees will enable faster commercial lawsuits. For users, a deterrent scheme will be set under two concepts: the establishment of individuals – which might create Constitutional controversies in the future since they could be used as some sort of community control – and the garnishee order – which will be used when goods are hidden, squandered, disposed or may prove insufficient to be used as payment for a debt for which they were consigned as a guarantee. And for the banks, an adequate incentive scheme is generated in order to provide the best services and conditions by banning tied sales and enabling clients to transfer their credits towards consumption or their banking operations towards their preferred bank.
On one hand, the financial reform intends to boost economic growth by expanding credit and, on the other hand, aims to decrease overdue portfolios using dissuasive schemes for potential past-due clients. But as these strict schemes were required, the role of the National Commission for the Protection and Defense of Financial Users (CONDUSEF) will also be of great importance in order to guarantee a competitive environment that offers a responsible amount of improved financial services for all users.
CIDAC
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