Microfinance as a Tool for Poverty Reduction : A Study in Mexico *

The objective of this study is to evaluate the impact of microfinance on the low-income people. The research was carried out in Mexico, a country with well-developed microfinance sector. The results have shown that microfinance has got an impact on improvement in the social and financial situation of the poor, female clients are particularly involved in microfinance sector. The higher income of clients has not caused higher expenditure on their basic needs and they used money for future and as additional money for education. The microfinance impact assessment and its results assumed that people, primarily women, prefer an improvement of social situation in their families and for future generations. Based on these findings we consider microfinance as an effective tool for breaking the vicious circles of the poverty worldwide. Moreover, microcredit has been capable of increasing self-employments in rural parts in Mexico. It is evident that microfinance leads to develop small entrepreneurships.


Introduction 1.
This topic of microfinance has been discussed and has become a center of discussions among experts in the last decades.Microfinance is very often presented as a panacea for poverty alleviation, particularly in developing countries (Hes et al., 2012).Poverty in developing countries is identified with specific features such as high population growth, low economic development, wide-spread of diseases, unequal distribution of financial resources, low-income stability, increase of violence etc.These all factors result in unsuitable conditions for the poor in the forms of low labour productivity, low unemployment or minimum job opportunities.
Microfinance are a response to the problems and economic crisis worldwide, especially in the most developing countries (Bassem, 2012).It might be seen as one of the tools able to reduce poverty.In general, microfinance can be described as the supply of credits, savings, insurance, educational services, training services, and other financial services to the poor.Year 1976 was significant for the microfinance.In this year Muhammad Yunus started firstly the experiment with establishing the Grameen Bank in Bangladesh.This was primary designed for very poor and then it attracted the other social classes of the poor -more economically active -to start and run their small businesses (Ledgerwood, 2013).
Microfinance assists low-income individuals to start up and run their own business, build assets, increase productivity, invest into higher dimensions of business processes, reduce unexpected risks, rise incomes, improve the quality of their lives etc. Microfinance institutions (MFIs) benefit from the fact that financial services consisting of many financial tools are available to everyone.This is the biggest benefit that is known and widely spread around the world.MFIs provide small loans named as microcredits or microloans.It is the basic tool and considered financial microfinance service.Microfinance providers offer other technical, operational and social services.An example might be training in management, financial literacy or marketing, basic group creation, the development of self-assurance, the knowledge of better healthcare and education opportunities etc. Universally, microfinance is not simply banking; it is a kind of development tool (Ledgerwood, 1999).
Mexico is a country where microfinance are spread in the financial market sector through the operating formal, semi-formal and informal microfinance institutions.Mexico has got one of the most flexible and the biggest microfinancial markets in the world.The characteristic phenomenon is a continual growth and "supply" of new clients.One of the most significant MFIs is Banco Compartamos established in 1990.The main purpose of this institution is to contribute to the development in Mexico.In 2010 it has got more than 2 million clients.Todays Banco Compartamos run Comisión Nacional Bancaria y de Valores, Secretaría de Hacienda y Crédito Público and Banco México (MixMarket, 2016).Not merely The Foundation for International Community Assistance (FINCA) and Banco Compartamos is there, Servicios Financieros Comunitarios S. A. de C. V. (FINCOMÚN), Consejo de Asistancia al Microemprededor (CAME) and Servicios para el Desarrollo Comunitario S. A. de C. V. (CrediComún) have got a great perspective for the microfinancing in Mexico.In 2000 the demand for the microloans was about $5.1 million (Ashby, 2000).In 2008 there was a governmental research that indicated a huge increase of interest in microloans between 2006 and 2008.In Mexico there is a contribution of MFIs into the transformation of families, development of new projects, support of women particularly.The need of microloans is high not even due to the contrasts between the Poor and the Wealthy.Mexican microfinancial representatives worry about new coming of MFIs.There are also some worries about the future clients and about the political risks.New studies of Mr Marulanda Consultores regards to the microfinance with a big criticism.The research points out the microfinance in Mexico as a situation of "uncertain maturity".The potentional success can be reached only in case of effective solving of the problems (Center for Financial Inclusion, 2016).

Mexican microfinancial system and situation of rural finance
It is estimated that 80% of Mexican population does not have any access to the commercial banks.According to the World Bank (WB) Mexico is increasing slowly in case of microfinancing, the world's increase is 35%, an increase in Mexico is only 20%.It economically affected 9% of economic active population.The reason is in a small spread out of the non-governmental organizations (NGOs) and an absence of successful microfinance organizations.Year 2000 was called as the boom of microfinance.Microfinance presents for the Mexican government unique alternative in financing large scale of levels of the inhabitants (UNCDF, 2016).Due to this reason there were established and used new programs and instruments which could help expand formal microfinancial institutions.Under the rule of a president Vicente Fox it was a huge increase of MFIs.He supported this idea in 90s in 20 century when Muhammad Yunus visited Mexico.
Before the financial reformation that was finished in 1989, agricultural credits were used as a tool of technological changes investigation.The goal was an increase in productivity in agriculture.Generally, these agricultural loans were provided with the lower interest rates rather than the market value was.They represented significant source of financing for the villagers, its households particularly in the periods before harvests.New neoliberal model of economy was introduced in Mexico in 1982.It required lower independence on state budget and its financial system.In the reformation there were, for instance, these steps: cancellation of the rule when the commercial bank had to provide a loan separately according to the economic sector; definition of the circle of the clients that had to be served by Banco Nacional de Desarrollo Rural (BANRURAL); independence of the agricultural sector and agricultural insurance; diversification of the credit service with the goal to eliminate the risks that were caused by the concentration of all operations only on one sector and one activity (agricultural).The result was cancellation of subsidized interest rates for the farmers, increase of the credit volumes provided to the farmers.New clients were also chosen more strictly.There was also created a "pyramid" of four levels.Nowadays the lowest part is consisted of approximately 1 million farmers who are not evaluated as creditworthy and who are encouraged by the program Programa Nacional de Solidaridad (PRONASOL) through the verbal form.Then there are villagers (400 thousands -600 thousands) named as "ejidatarios" that are evaluated as less productive and the loans are given to them through the BANRURAL with small subsidized interest rates.Other step are small profit-making farmers that are evaluated as perspective (500 thousands -600 thousands) that are lead by the commercial bank with Fideicomiso Instituido en Relación con la Agricultura en el Banco de México (FIRA) securing at these days.

Microfinancial sector and institutions
In Mexico this sector is consisted of distinct participants as microfinancial institutions, governmental programs, scientific institutions, funds, foundations, international charitable and non-profit institutions.These organizations have different orientation, legal status, formalities etc.These can be oriented on various parts of population.There exist local, regional, state or national MFIs.They can provide financial and non-financial services (education, technical assistance, health services …).National association of microfinancial institutions and funds estimate the size sector of over 600 organizations that are concerned with microfinance.In Mexico there are two the most important microfinancial systems: Asociación Nacional de Microfinancieras y Fondos (ANMYF) and ProDesarrollo, Finanzas y Microempresa.ANMYF has at least 41 member organizations, 200 thousands or more clients whereas ProDesarrollo has 30 organizations with more ISSN 2039-9340 (print) Mediterranean Journal of Social Sciences MCSER Publishing, No 5 September 2016 20 than 800 thousands clients.Division of MFIs on the basis of distinct characteristics (Hidalgo, 2005): A) Number of clients: 41% less than 1 000, 46% between 1 000 -4 000, 13% more than 4 000.B) Gender: 76% women, 24% men.C) Methodology: 66% mixed group and individual methodology, 8% individual loans, 26% selfhelp groups.D) Legal form: 58% cooperatives, 15% joint-stock companies, 8% limited liability companies, 8% public institutions, 5% citizens' associations, 3% funds, 3% cooperatives and citizens' associations.E) Sources of financing: 27% provided by governments, 19% international organizations, 16% own funds of MFIs, 15% bank sector, 13% private donors, 10% Fondo de Microfinanciamiento a Mujeres Rurales (FOMMUR).F) Size of the fund: 26% less than 1 million pesos, 34% 1 -5 million pesos, 24% 5 -10 million pesos, 11% more than 20 million pesos, 5% between 10 -20 million pesos.Microfinance institutions in Mexico as FINCOMÚN, CAME or VisionFund México are one of the most perspectives there.
The research is focused on the impact of microcredit in Mexico due to the fact that commercial banks are the only authorized institutions that can offer to the public almost everything.Despite the diversity of the tools, microcredits are defined as small sized loans that are flexible and offered for short-term periods to low-income clients to generate incomes, develop enterprises and get higher community standards on all levels.Due to low economic growth, inflation, increasing poverty in rural areas and lack of job opportunities, microfinance becomes a mean of alleviating poverty for unprivileged individuals.Microfinance represents a source of finance available for economically active poor businessmen who have limited access or no access to formal financial services.The lack of financial services, especially for poor women, appears to be a problem in Mexico.There are many obstacles to the classic loans provided by commercial banks such as a lack of guarantee, the location of banks, the issue of loan size and its repayments, none knowledge and financial literacy.Sometimes the religious issues are debatable.It is clear that a lack of financial services expands poverty and higher unemployment not only in rural regions.
The unemployment rate was in autumn 4.3% in Mexico (OECD, Annual Report 2015).At the end of 2014, the unemployment rate was higher 4.8% that was the third lowest rate in the member states of Organization for Economic Co-operation and Development (OECD), including half million of unemployed people (Japan and Southern Korea had the first positions).Employment prospects for women are worse rather than for men in the global scale.In Mexico 2/3 of population were women who were not participated in the labour force.To enable poor people to start small businesses through the access of financial services -microcredits are important.It is needed to build a stronger position in the market, to generate income and expand activities thanks to the spread of microfinance services.Then the contributions to the economic development of the areas, regions and the state will increase and it will be prosperous.
Thus, the objective of the paper is to evaluate the impact of microfinance in Mexico in these specific areas: (1) the impact on the social and economic development of population, (2) population (un)employment.The key research questions are defined: • Do microfinance services improve the capacity to manage, control, build up their asset base to increase the social and economic status of the client's households?
• Do microfinance services enable the clients to develop businesses and to increase employment in their areas?Source: own processing According to the Peprah, Koomson (2014), microcredit is described as a context of financial and social mobility.The purpose of microfinance is reduction of the poverty.In order to achieve these effects, MFIs should be able to move clients up the social and financial ladder through their operations and services.It is demonstrated that microfinance has had a positive impact on business start-up processes.It provided the primary source of finance for the economically active poor to increase their level of employment and investments.Furthermore, smaller firms grow at faster rates than the larger ones and create much more job opportunities.However, there are a lot of controversial issues and constraints of inadequate access to finance.Thus, relating to the main goals and literature review mentioned above, the hypothesis are as follows: Household living betterment -microfinance creates an improvement of the social and financial situation of clients.The income of some clients has risen up so their expenditure on education, food, shelter, health services has risen up, too.Increase in paid employment -microcredit expands into some micro-enterprises, small businesses are increasing the paid employment for the poor there.

2.
Poverty was identified as the major problem in Mexico that might be solved not even in the most distant areas.Microfinance has been seen as an appropriate tool for alleviation poverty.Based on these facts the key research questions and hypothesis were defined.The research was done in the states where are the highest disproportions between income of inhabitants which is the problem in the capital predominantly.Other states were chosen in consideration of the poverty itself.Some experiments to test the hypothesis were designed, for example, sudden access of financial sources and finally constantly financial sources that increase in the standard of living (on the basis of new job opportunities).An increase in paid employment expanded into new micro-enterprises for the poor.This appropriate process of bringing new job opportunities was accepted and adopted by the poor with an enthusiasm.The support of MFIs and NGOs implemented and realized new approaches and awareness about a lot of microfinancial activities.Nowadays the process of microfinancing is done countinously with the major goal to improve and to sustain the situation there.

Data collection
The research was carried out in four Mexican states covering the capital named Distrito Federal (D.F.), state Oaxaca in the south-west, state Chiapas in the southern part (on the border with Guatemala), and Santa Fé in the state Guanajuato in the northern centre in Mexico.Data were collected both in the rural and urban areas.The total number of respondents was 952.This sample consists of clients (684) and non-clients (268) of microfinance institutions.The sample frame was set up from clients that have been using microfinance services at least from 6 months to 5 years.All of these clients had applied for microloan for the first time.The sample represents all age categories (from 18 to more than 60 years) and all levels of education (elementary, secondary, university degree).A profile of the sample according to the state, type of area, and gender is shown in Table 1.Primary data were analized through the opened and closed questionnaires done during the interviews.Primary data were collected during the years 2013-2015 in the autumn periods.
The following microfinance institutions were selected for the research: Fincomún (Servicios Financieros Comunitarios S. A. de C. V.), CrediComún (Servicios para el Desarrollo Comunitario, S. A. de C. V.), CAME (Consejo de Asistancia al Microemprededor), VisionFund México, AlSol (Alternativa Solidaria Chiapas) and FINCA (The Foundation for International Community Assistance).These MFIs have been selected as the most important providers of microfinance for their wide reach in Mexico not merely in the states of research.

Data processing
Microfinance Impact Assessment (MIA) has been used as the mixed method.According to Barnes, Sebstad (2000), an impact assessment is a study to identify changes.These changes result from concrete program by employing methods to establish association between participation and changes experienced in the program.The MIA begins with clearly stated objectives that indicate all types of impacts that are examined.It covers both quantitative and qualitative impact assessment methods.The quantitative part is based on survey of the samples done through questionnaires.All obtained data were finally processed by using SPSS statistical program (Version 18.0., 2010).Simple statistical tests and cross tabulations were performed such as t-tests and the Pearson's chi-squared tests.The level of significance was set up at 95% for both tests.The mentioned hypotheses were set relating to the impact of microfinance services.Each part of the research was tested using statistical analysis of collected data.

Economic determinants
During data processing, it was necessary to consider economic determinants characteristics in selected regions (states) such as an income tax or inflation.According to the World Bank 2015 (http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG., accessed 5 March, 2016), during the last few years, inflation as measured by the consumer price index was: 3.4% in 2011, 4.1% in 2012, 3.8% in 2013, 4% in 2014.These percentages of inflation have resulted in financial burden for low-income inhabitants during these last years.It is important to mention that the personal income tax rate in Mexico stands at 30%.It is averaged 29.64% from 2004 until 2014, reaching all time high of 33% in 2004 with a record low of 28% in 2007.Income tax rate is reported in Mexico by the Servicio de Administración Tributaria -Secretaría de Hacienda y Crédito Público (SHCP).Personal income taxes are divided into two sections when the person is resident individual or non-resident individual.On the basis of these facts, there are determinants that separate taxable income and percentages of basic tax columns (http://taxsummaries.pwc.com/uk/taxsummaries/wwts.nsf/ID/Mexico-Individual-Taxeson-personal-income, accessed 5 March, 2016).

Household livelihood improvement
According to the Johnson, Rogaly (2002), we used income as a poverty line where poverty reduction is measured by counting numbers or proportions of people who cross the line -who are or who are not promoted out of poverty.During the year, there are, however, fluctuations of income.Poor people have to deal with these fluctuations in their incomes.Some of these fluctuations are predictable, for instance, seasonal decline in agriculture connected with harvests and trading opportunities in markets.Microfinance Impact Assessment (MIA) that was provided in Mexico was calculated with monthly incomes.The income categories were divided into two parts -before using MFIs services (6 months before) and after when they are already clients of MFIs.
The financial improvement among the clients of MFIs in Mexico has been achieved.The most represented income category (71.5%) of clients before using microfinance services is the lowest category at "less than 1300 MXN per month", while the most represented income category (47.2%) of clients after using microfinance services is between 2501-3500 MXN per month (according to the Central Bank of Mexico the exchange rate is 1 USD = 17.7679MXN and 1 MXN = 0.0562811, accessed 5 March, 2016).Only 37% of current MFI clients have a lower income than 2500 MXN per month compared to 94.6% of clients before using microfinance services within the same category.It shows a major betterment in the financial situation of microfinance clients.Pearson's chi-squared test ( 2 ) was calculated according to the crosstabulation, comparing the average income before and after using microfinance services.Pearson's chi-squared test was finally calculated 2 = 642.012with P-value = 0.000.It was confirmed statistical significance that there is a positive relationship between the income before and after using microfinance services.For the matrix, the Pearson's chi-squared data were used from Table 2. Source: own processing Fig. 1 shows differences between each income category before and after using microfinance services.The minimum legal wage set by the Labour law had been 1283 MXN monthly in Mexico until 2014.Microfinance is mostly used as a tool for poor and lower-income people.It is significant to verify if microfinance services are used only by these segments of inhabitants so cross tabulation was done to identify if any significant association exists between the average income per month and a client of MFI.Thus, relating to Table 3, the Pearson's chi-squared test 2 = 102.41with the P-value = 0.000.
It can be mentioned that non-financial services of MFIs play considerable role in these results.MFIs basically provide non-financial services that are able to help clients start up or develop their small businesses.This is done through training programs and accessible products.Clients are able to learn how to produce their products or goods relating to their projects.Other non-financial service is marketing -how to sell and promote products, goods or services in markets.An integral part is micro-insurance services naturally.Most of financial services are free of charge for the clients.Sometimes MFIs have got a special policy when clients do not have to pay for in case they have already taken out a loan.According to the numbers of the research at least a half of the clients are able to save money of their incomes.However, a huge difference is between men and women.The significant association between genders has been identified (the ability of saving money).Table 4. shows the greater ability to be money saved by women compared to men.  4 below, 71.4% of females were able to save money versus 23.5% of males.It resulted into the fact that males tend to invest more in their own businesses than into their households.Female clients are much more responsible so it is evident a really strong association between savings and gender ( 2 = 149.558,P-value = 0.000).The majority of microfinance clients who are able to save money, use this additional money to save for the future (57.3%) -it ISSN 2039-9340 (print) Mediterranean Journal of Social Sciences MCSER Publishing, Rome-Italy Vol 7 No 5 September 2016 24 was the most preferred answer.Then, it was followed by the category education (29%), health care (27.1%), securing of the family (13.7%),other as hobbies or food (1.5%).In result, general hypothesis was accepted with specific information: microfinance causes betterment of financial security.This result aims for improved social situation.The income of microfinance applicants has risen up, expenditure mostly given to the education, household assets or to unexpected livelihood sufferings.

Increase in paid employment
From the global point of view, the most important role of reducing poverty is the reduction of unemployment.The development of small and micro-enterprisers should be considered as one of the basic determinants everywhere.This is basically seen in developing countries where these small and micro-enterprisers are the most widespread and have the highest percentage among the other enterprisers which contribute to economic productivity.Most governments in developing countries are focused on small enterprisers to fulfill the role of increasing production and employment.This actively contributes to the increased rates of national income and economic growth (Saymeh and Sabha, 2014).Positive trend of used microfinance is seen not merely in small enterprisers, it is a positive for self-employment.People are now able to obtain microloans to start their businesses and become self-employed.The percentage of clients who were out of work before using microloans was high (approximately 56%).Regarding self-employment according to gender, there was no confirmation of any statistically association between gender and unemployment before using microloans.The t-test was done to identify if there are any statistically significant dissimilarities between gross turnover before and after taking a loan from MFIs.To answer this question, t-test was calculated.The objective was to find out if there are any significant differences between the 2 means as it is in Table 5.It is relevant that in the test are only MFI clients doing business included.Table 5 shows statistically significant differences at the 10% level of significance between the means before and after in favour of after.We suppose that according to the basic economic relationships, the raised turnover causes rise in business profitability.This is a positive trend for the future.This supposition is based on the fact that the turnovers of MFI clients and their small businesses have been rising permanently.It is evident that microcredits have facilitated in rising the employment for the low-income people.This was basically done through self-employment and the expansion of small businesses and micro-enterprisers that are able to cause a rise in paid employment.A rised demand for manpower causes the expansion of business.Can it be applied to the MFI clients in its fullness?MFI clients who own microenterprisers have not been hiring new persons since receiving a microloan.It is a new model for the future.As a result was partly accepted general hypothesis: microcredits have facilitated in rising the employment for low-income people; future expansion of micro-enterprisers and self-employment may cause a rise in paid employment.The results of the MIA have shown the positive effect of microfinance on the target group.The betterment of the financial situation is completely proven without any discussions.Furthermore, results published by Copestake et. al. (2005) suggests that participation in a microfinance program has had an important effect on income (individual, household).On the other side, the issue of the betterment in a client's social situation is doubtful.Surprisingly, the higher income of clients has not led to higher expenditure on their basic needs.Instead of this fact people generated income for the future and used the additional money for better and higher education.More than 76% of males sampled are not able to save money, while more than 71% of females are.Majority of females save the additional money for the future only in case when there is higher income.This improves social situation in the families in the future but what about the present social situation of these persons?Startlingly, the additional money is not used for better food or healthcare.MIA's results prove that particularly women prefer to improve social situation of their families and for the next generations.On the basis of these findings it is considered that microfinance is an efficient tool for breaking the vicious cycles of poverty in Mexico.This fact was also confirmed by studies done in Bangladesh.According to Gulli (1998) males tend to invest more in their businesses and females invest more in their households and children.
According to the researcher Peña ( 2013), the goal of all enterprisers is an establishment of profit maximization for the standard microeconomic theories.Enterprises are not the same and the motive for starting a business may not be considered as a variable that could affect that objective.Many businessmen announce non-pecuniary benefits as the primary reason for starting their businesses.The most frequent benefits are independence and flexibility.These motives represent the large majority of businesses in Mexico.Many microentrepreneurs do not perceive the lack of financing as an obstacle.A lof of them have only little desire to innovate or grow, if any.National Survey of Microenterpriser in Mexico (ENAMIN -Encuesta Nacional de Micronegocios) provides all information and data not even of the microentrepreneurs.Current data are elaborated by the National Banking and Securities Commission (CNBV) in Mexico.
If the microfinancial services will increase in the future rapidly, majority of clients owning business intend to hire new employees.This will cause expansion of micro-enterprises with its positive trend in increasing paid employment in the future, having a positive impact on poverty alleviation.Job creations and the compulsory secondary education are key priorities for Mexico today.Economic inclusion would be easily practicable.These objectives will be advanced by enhancing access to financial sources, improving competitiveness in the financial market, and maintaining sustainable environment and economic growth of the sector.Smaller companies in Mexico grow at faster rates than larger ones.Smaller companies also create more new job opportunities not even in urban but also in rural areas.

5.
Microcredit is designed to support business and reduce poverty.Some researches done across the world still have shown that giving poor people access to microcredit does not lead to a significant increase in household income.There also appear to be no important benefits in terms of female empowerment or education.However, what microcredit does is that allows low-income households to better cope with risk and to enjoy higher flexibility in how they earn and spend money on what is needed.Microcredit is a useful financial instrument but not a powerful anti-poverty strategy.According to Zeller and Meyer (2002) MFIs have to manage contemporaneously the "triangle of microfinance" such as an outreach (reaching the poor both in terms of numbers and depth of poverty), financial sustainability (meeting operating and financial costs over the long term), and impact (having identifiable effect upon quality of life of the clients).The success rate of any MFIs shows fulfilling of these tree aspects of the triangle that makes the concept valuable.
Regarding Mexico, microfinance can be considered as a factor that has had a positive impact on the poverty alleviation.MIA has already demonstrated that microfinance leads to a betterment of the financial situation of low-income people, particularly women.Besides, microfinance has increased job opportunities and has contributed to the future expansion of some small micro-enterprises.Small businesses may create job opportunities for paid employment.However, is microfinance such a ground-breaking key factor for poverty alleviation?In this study was demonstrated the positive effect on the target group.According to this research microfinance plays partly an important role in poverty alleviation.There are also other determinants which might be considered such as economic and political environment in every country.These determinants affect how microfinance programs are provided.All should be respected for the future and better development of functioning microfinance sector, assisting the poor and low-income people to be successfully escaped from poverty in Mexico.

Figure 1 .
Figure 1.Income categories before and after using microfinancial services (income/month) Source: own processing As it is shown in Table4below, 71.4% of females were able to save money versus 23.5% of males.It resulted into the fact that males tend to invest more in their own businesses than into their households.Female clients are much more responsible so it is evident a really strong association between savings and gender ( 2 = 149.558,P-value = 0.000).The majority of microfinance clients who are able to save money, use this additional money to save for the future (57.3%) -it

Table 1 .
Profile of sample

Table 3 .
Crosstab: Income categories: Average income vs Client of MFI

Table 4 .
Crosstab: Are you able to save money when you receive a loan from MFI?

Table 5 .
Results of the Paired-samples t-test -difference between the gross turnover before and after taking a loan from MFI