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Authors:Laura D. Tyson is Interim Dean of the Haas School of Business and Faculty Director, Institute for Business &amp; Social Impact, University of California, Berkeley.Byron Villacis is a PhD candidate, University of California, Berkeley.

The new report presents evidence that small business owners in Mexico prefer informal financial networks to the formal financial system.

In 2018, Mastercard’s Center for Inclusive Growth partnered with the <a href="http://www.haas.berkeley.edu/IBSI/" target="_blank">University of California at Berkeley’s Institute for Business &amp; Social</a> impact to study a large segment of low-income microfinance customers in Mexico. UC Berkeley researchers partnered with local NGO, <a href="http://fundes.org/" target="_blank">FUNDES Latinoamérica</a>, to conduct a survey of 1200 microfinance customers to better understand the motivations and preferences for financial services among microbusinesses at the base of the pyramid. The study found low trust in formal financial institutions – despite available options – and, the need for more product innovations to serve those businesses that have the potential to grow.
This report presents original research and data analysis from a survey of micro-entrepreneurs in Mexico. In the beginning of 2018, over 1,300 individual micro-entrepreneurs were surveyed across Salamanca, Guadalajara (subsequently referred to as the neighborhood of Alameda), and Mexico City. Specifically, the survey explored micro-entrepreneurs’ mechanisms for financing, how they deploy technology, and the training they are interested in. The findings from this report provide initial insight into the preferences of microenterprise owners, a potential classification framework for identifying Strivers, and an agenda to guide future research on Strivers.
The main findings from the sample are summarized below:
<ul>
<li>Among micro entrepreneurs in Mexico, there is a preference for informal loans. Interestingly, this is the case among micro-entrepreneurs across all levels of education. We found that 75 percent of survey respondents do not consider the formal financial system a safety net in times of economic need. In fact, almost two-thirds of micro-entrepreneurs would prefer to either draw from their savings or borrow money from a friend or relative, rather than take out a loan from a formal financial institution. 
 
</li>
<li>The survey results indicate that the majority of micro-entrepreneurs in Mexico have a preference for individual loans over collective loans. Collective loans are used by formal financial institutions (i.e. MFIs, banks, etc.) to increase accountability and repayment rates among micro-entrepreneurs. The divergence between the preference for individual loans among micro-entrepreneurs and the collective accountability tactics utilized by formal financial institutions may partially explain why micro-entrepreneurs are partial to informal loans. 
 
</li>
<li>Over three-fourths of the micro-entrepreneurs in the sample own a cell phone, however, only 14 percent use their cell phone for business transactions. This suggests that technology—cell phones in particular—is underutilized among microenterprise owners. Targeted programming encouraging business-related cell phone usage could result in efficiency gains and unleash potential for micro-entrepreneurs in Mexico.&nbsp; 
 
</li>
<li>Based on our classification framework, we find that Strivers compose over 60 percent of the sample of micro-entrepreneurs in Mexico. Strivers tend to be the main source of financial support for their household, have more than 30 clients per week, prefer informal loans during business downturns (specifically, through drawing from their personal savings), prefer individual loans over collective loans (because of the higher amount they can receive and the individual responsibility to repay the loan), and are likely to own a cell phone.&nbsp;</li>
</ul>
<a target="_blank"></a><a href="/content/dam/public/mc-cig/uploads/Mastercard-Micro-Entrpreneurs-in-Mexico-Report-2018.pdf" target="_blank">Click here to view the entire report.</a>

Mastercard Strive 

With philanthropic support from the Mastercard Impact Fund, we work with partners to meet small businesses where they are and support them with innovative digital and data-first solutions to unleash their full potential to catalyze inclusive growth.

Small Businesses in Mexico: Profiling motivations and preferences