Why is the SME segment in Mexico an important business opportunity for investment?
SMEs represent 98% of the market and translate into 53% of the national GDP and 70% of employment in the country. Most established traditional finance institutions and banks do not easily lend to SMEs or do so at rates that hinder the potential of the business. Access to capital is the most important catalyst to scale an already working and profitable business, and that is where we come in. Many SMEs need access to investment alongside money management support and other assistance in establishing and monitoring back office activities. CAPEM means Capital Empresarial, as we see ourselves as businesspeople helping businesspeople upgrade their old- school approach to business practices or complementing profitable businesses with high revenues that just lack the administrative platforms needed to take a business to the next level. Our credit options range from MXN1-100 million. We consistently attend events and meetings of SMEs and start-up trends to recognize and approach the main and upcoming players looking to diversify our participation and portfolio to better manage our risk and learn more from different industries.
What methods do you use to raise capital for your portfolio?
We started and remain mostly funded by our own founding investment capital. Still, as this is a debt fund, our core operations are to invest in the capital market dealing with debt bonds and managing a healthy debt portfolio of short-term and long-term maturity bonds and sharing the risk within the pool of investors that buy our debt, which is the debt of the companies we invest in packaged in a financially healthy way. As we have grown, we have also gathered the interest of many investment groups overseas looking to enter into JVs in Latin America. Analyzing the maturity of our own business, we see JVs as the long-term strategy to sustainably accessing investment capital to expand our operations in Latin American and beyond. For the next decade, we want to establish ourselves in Latam and have already recognized important opportunities in Peru and Colombia that could launch us into the rest of the region.
Can you share with us some of your success stories or pet projects?
Among that large pool of SMEs, the majority of companies are those operating directly in B2C activities in a wide range of industries. However, there is a smaller, but still significant, group of SMEs that specifically work in micro-scale financing for other SMEs. Interests rates and capital caps are still restrictive as these companies themselves have a complicated access to funds for lending. Taking this into account, we have positioned ourselves as the second level financing for these set of companies that can, for example, turn a single MXN10-million loan into 1,000 micro loans to fund 1,000 projects or boost 1,000 companies' needs. Our most important projects are thus, the ability itself to anonymously support thousands of projects, start-ups and, at the end of the day, the entrepreneurial dreams of thousands of Mexicans.
How do you expect COVID-19 to influence the sector and the economy in general?
Most companies, specifically SMEs, are facing or will face make-or-break situations depending exclusively on how they handle the crisis. We have created a program called Smart Money that looks to actively work to create best practices and improve continuously their businesses. Regarding COVID-19, with some companies we have started stress tests on their cash flow to prepare companies for situation like these in which an external event might shorten or complicate their financial stability. Most companies were, unsurprisingly, ill-prepared for such events and ran on a particularly short financial leash. Many management lessons will come out of this crisis, and people will be more responsible in their business-as-usual operations from now on. We are working closely with many companies on different terms forecasts and exploring different scenarios so that we can be as prepared as possible to the consequences of this crisis.