This tool puts financial health first for microentrepreneurs in Mexico

Caja Bienestar empowers microentrepreneurs in Mexico with tools to recover from the pandemic, grow their businesses long-term, and build their financial health

Lack of access to credit has held Cristobal Sarabia back from growing his business in Santiago de Querétaro, Mexico

In Mexico, 99 percent of all businesses are micro, small, and medium enterprises (MSMEs). They make up 52 percent of GDP and generate 72 percent of jobs in the country. Although MSMEs play a crucial role in Mexico, less than 10 percent of them have received a bank loan. For many entrepreneurs, the size of their business, a lack of documentation, and a low or non-existent credit score are the barriers to access; for others, it is simply more convenient to access informal lending, where there is no need for collateral or a track record of sales. Many microentrepreneurs obtain financing directly from their suppliers, who they know and trust. However, these distributors would prefer not to take on the risk of offering financing directly.

COVID-19 has made the challenges that microentrepreneurs face more urgent than ever. Due to reduced sales and revenue, MSMEs today are facing greater liquidity shortages than ever before. As entrepreneurs attempt to restart their businesses and demand slowly picks up, their need for credit to stock their shelves has never been more critical.

Located in the heart of central Mexico, Caja Bienestar is the largest socially focused financial institution in the country, and it’s experienced in solving the problems that MSMEs face. Now entering its 25th year, the institution has more than 80,000 active microentrepreneur clients. Since its inception, Caja Bienestar has offered a variety of low-cost, high-quality financial services to its clients — both for personal and business purposes.

Working with Accion, Caja Bienestar is tackling the lack of access to credit by building a revolving credit line for microentrepreneurs called Bienestar por tu Negocio. This credit product will not only help small merchants more easily access capital and replenish their inventory, but also provide financial advice to improve inventory turnover and help entrepreneurs develop the capabilities to meet their goals and smooth their income during difficult times. Distributors also benefit as they can optimize their sales and transfer the risk of giving credit to Caja Bienestar.

Bienestar por tu Negocio credit tool

Bienestar por tu Negocio helps clients to increase their sales by providing credit needed to purchase inventory, tools, and machinery.

Bienestar por tu Negocio launched in January 2020 in partnership with trusted, local distributors that provide goods to MSMEs. In the pilot, six distributors from different segments — from textiles to construction materials — were selected to participate. Using information and recommendations from these suppliers, Bienestar pre-approved groups of microentrepreneurs for access to credit to replenish their inventory of these products. As many of these businesses experienced a significant drop in sales due to the pandemic, the product had less usage from March until September. However, we are now seeing an uptick in use as these distributors are accessing credit to grow their inventory and rebuild.

This revolving credit product is meant to support business owners like Cristobal Sarabia in Santiago de Querétaro. His industrial lumber business, Grupo Crisar, opened in 2010. Cristobal told us that onerous documentation requirements prevented him from taking out a loan from a traditional bank, and that he was not able to obtain a line of credit when he most needed it. Unlike larger businesses that have easier access to credit, his options were limited to credit cards, making it difficult to grow his small business.

Stories like Cristobal’s are the inspiration for this revolving credit product. To ensure that the revolving credit line contributes to microentrepreneurs’ financial health, the Bienestar and Accion teams built a simulator that potential applicants can use to determine what loan terms they would need to finance their inventory. The tool calculates whether the expected profits from the sale of their inventory will be enough to cover the cost of taking out credit. It then guides them to consider different terms or amounts based on their situation. With this tool, Bienestar helps clients consider their options before applying for credit.

Bienestar's credit simulator tool

The simulator shows the cost of credit and helps the user to calculate the profits needed from the purchased inventory to cover the cost of the credit line.

This tool ensures that potential customers use of credit is beneficial to their financial health, rather than detrimental. It forces applicants to consider their options before acquiring credit, helps them to understand what loan terms will be optimal for their business, encourages greater confidence in taking out the loan through a clear and straightforward process, and provides guidance on how to manage inventory and increase profits.

By offering these entrepreneurs access to credit as well as free use of the digital simulator, Bienestar is providing a way for underserved entrepreneurs to grow their business. With Bienestar por tu Negocio, entrepreneurs finally have access to the credit they deserve and the opportunity to grow their businesses.

This product is a part of our Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project, supported by MetLife Foundation.

Contributions by Megan Skaggs

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