Aurelio Ram?rez needs to borrow about $1,000 to pay off debts and make some repairs at his dry-cleaning business in Mexico City. But forget about going to a bank for a loan. "The banks ask for too many things," he says. "I don't have my own house or car or a credit card." So Ram?rez, 30, walked into a branch of Cr?dito Familiar, a finance company that offers consumer credit to working-class Mexicans. To get his $1,000, he'll pay 60% interest plus a 5% commission. Those are steep rates, but at least the weekly fixed payments are tolerable. "I haven't found a better solution," Ram?rez says.
Six years after the disastrous peso devaluation sparked a wave of debt defaults, Mexican banks are still not lending. Yet so-called "limited object finance companies," or sofoles, are filling demand for mortgages, auto, personal, and small-business loans. Data just released show that total credit outstanding from such entities jumped 33.4% last year, to $6.9 billion--much of it to the vast majority of Mexicans who do not have a bank account. That compares with a near 10% drop in the banks' private-sector loan portfolio. And the sofoles are offering more and more services, which is good news to their cash-strapped customers. "Every day we're looking more like banks," says Manuel Campos, vice-president of Hipotecaria Su Casita, a sofol and the second-largest mortgage lender in the country.
COLLECTION VANS. The question is how much bigger these finance companies can get. They are not allowed to take in deposits, so until now they've relied on funding from a corporate parent, the banks, or the government. "Our first priority is to diversify our sources of funding," says Carlos Obreg?n, president of the Mexican Association of sofoles.
Foreign money is already flowing into the industry. Among those to set up sofoles are Ford Credit Co. and General Motors Acceptance Corp., which together have some $3 billion in outstanding auto loans. Citicorp's CitiFinancial has a stake in Cr?dito Familiar, and Pulte Homes Inc., the largest U.S. homebuilder, owns 22% of Su Casita.
Although the finance companies often cater to customers with no credit history, they carefully assess loan applicants on the basis of personal and job references. And collection is a priority: Some of the mortgage sofoles dispatch vans to housing developments to pick up payments. That explains why the finance companies boast an average past-due loan ratio of less than 2.5% of their portfolios, versus 5.7% at the banks. "They have experience in how to originate and collect loans, so we can work together," says Jos? Landa, general director of GMAC Hipotecaria, which has teamed up with some Mexican sofoles in a newly launched two-year, $280 million home lending program.
But even with foreign heavyweights jumping in, sofoles need to raise money in the capital markets to expand their lending. So far, the finance companies have encountered limited appetite for their paper. The main obstacle is that Mexico has no real market for asset-backed securities--bonds financed by future payments on mortgages and other loans. Su Casita, which handles a loan portfolio worth $645 million, set an encouraging precedent last year when it placed $18 million in bonds. It hopes to raise $40 million or $50 million more this year. International Finance Corp., the World Bank's private-sector lending arm, has already committed to buying $2.2 billion of the new bonds. "The whole thing is to get the market to familiarize itself with the paper," says IFC investment officer Serge Devieux.
Home lenders would also get a boost from the creation of a national mortgage bank, one of several initiatives on the government's housing agenda. Backed by a guarantee from such an institution, the sofoles' bonds would be more attractive to local pension funds, which are now limited to investing in top-grade securities. But until the sofoles find a welcome in the markets, they won't be able to extend all the credit their customers need. More's the pity: The sofoles are the closest thing to a real banking system most Mexicans will ever encounter.
Corrections and Clarifications
"Need a loan? Here's where to find one" (Latin America, Apr. 30) incorrectly stated that the International Finance Corp. has committed to buying $2.2 billion of new bonds to be issued by Hipotecaria Su Casita. The appropriate figure is $2.2 million.
By Elisabeth Malkin in Mexico City