Ricardo Salinas, the Mexican billionaire whose banking and retail empire spans eight countries, is looking to bring his microlending business to the U.S. to capitalize on the opportunity with low-income customers.
Grupo Elektra SA seeks clients at the “bottom of the pyramid” in terms of income and assets, and U.S. households with less than $25,000 in annual income fit that profile, Salinas said today in an interview at Bloomberg’s headquarters in New York. He said he is considering entering the U.S. market with loans and “micro-insurance” plans, such as paying $10 a week for a $5,000 life-insurance policy, to serve those now “unbanked.”
“That would be my dream to set up a series of 10,000 branches over the U.S. that addressed the bottom of the pyramid,” he said. “It’s complicated because of the environment, but we’re looking at it.”
Salinas, 56, has used loans of an average size of $400 to build Mexico’s 10th-largest bank measured by credit portfolio, according to government statistics. Banco Azteca, started by Salinas in 2002 as a unit of the retailer his grandfather founded, has 12 million loan accounts across Latin America.
State and federal regulations make it difficult to enter the U.S., Salinas said. He said he isn’t interested in buying a U.S. bank and would prefer to start from scratch in the country.
Banco Azteca charges interest rates high enough that customers in some cases end up paying double the amount of the original loan over its full term, Salinas said. That’s necessary to cover the costs of offering the loans, since the bank’s more than 8,000 loan officers have to determine credit quality and collect interest payments, sometimes following up on delinquent clients with personal visits, he said.
Without higher interest rates, Banco Azteca wouldn’t be able to offer loans to poor people, he said. He said he didn’t have a figure for the bank’s average interest rate, and company officials said they couldn’t immediately provide a figure.
“Lots of people who like to help the less fortunate group of people at the bottom of the pyramid think that by regulating interest rates they’re going to do that, but it’s exactly counterproductive,” he said. “The bottom of the pyramid is much better served by giving access to credit than by cutting.”
Loans for Women
Banco Azteca, based in Mexico City, began about a year ago making loans to groups of women to help them finance businesses such as a dance studio or a restaurant, he said. The bank signed up 400,000 women for the program in its first year and expects to have 1.5 million next year, he said.
Salinas also said he is in talks to take the microlending business to Colombia. Grupo Elektra is seeking to obtain a banking license from Colombian regulators after the government eased regulations on lending, Salinas said. Assuming the license requirements fit Mexico City-based Elektra’s plans, it will begin opening banks and stores in the Andean nation, he said.
“Colombia is a credit-starved country,” Salinas said. “There are millions of small business owners and women who need working capital in the form of small loans.”
Salinas is making his first foray into Colombia with a telecommunications project. His TV Azteca SAB and Grupo Iusacell SA won a joint bid Nov. 4 for a $218 million project to extend fiber-optic lines to more than 700 Colombian towns. The companies beat a group led by ZTE Corp. for the bid, for which rivals America Movil SAB and Telefonica SA were disqualified.
The project opens up a new front in Salinas’s battle with Carlos Slim, America Movil’s controlling shareholder and the world’s richest person according to Forbes magazine. Salinas was listed as No. 112 on the magazine’s billionaire list in March with a net worth of $8.2 billion.
Iusacell, Mexico’s third-largest wireless carrier, has struggled to gain ground on America Movil and Telefonica and has less than 5 percent of the country’s wireless subscribers. Salinas’s plan to sell a 50 percent stake in Iusacell to Grupo Televisa SA for $1.6 billion will give the company the funds it needs to boost market share to as much as 15 percent, he said.
“It’s a huge breath of fresh air to the company,” he said. “What we need to do is give better service than the competition does.”
Slim is hurting competition in Mexico by offering lower rates for his clients to call each other than to call users of rival carriers, Salinas said. Since America Movil has the biggest network, with 70 percent of Mexican subscribers, those discounts make its service more attractive, he said.
“We have some advantages over the Iusacell network, which have to do with technology, coverage and distribution,” said Alejandro Cantu, America Movil’s general counsel, in a phone interview today. “They have to compete in the street, not with statements.”
America Movil’s Mexico unit does offer a plan with the same rate for wireless calls in and outside its network, Cantu said.
The Iusacell transaction, which awaits antitrust approval, puts Salinas together with the biggest rival of his broadcasting company, TV Azteca. Televisa controls about 70 percent of Mexico’s broadcast market, with TV Azteca holding much of the rest. Salinas acquired TV Azteca from Mexico’s government in a 1993 privatization sale.
Antitrust regulators shouldn’t object to the Iusacell deal even though TV Azteca competes with Televisa, Salinas said.
“You’ll never find an interest between TV Azteca and Iusacell,” he said. “I happen to be a major stockholder in both of them, but I have different partners.”
In addition to geographical expansion, Salinas is moving into new industries. Banco Azteca has built a $1 billion portfolio of investments in mining and alternative energy production, he said. The investments include a wind farm in Mexico’s Chiapas state, geothermal and mini-hydroelectric projects, he said.