TRUE POTENTIAL

Mexico 2013 | FINANCE | INTERVIEW

TBY talks to Enrique de la Madrid, Director General of Bancomext, on correctly targeting SMEs, the role of state financing, and expectations for 2014.

Enrique de la Madrid
BIOGRAPHY
Enrique de la Madrid is a lawyer from Mexico’s National Autonomous University (UNAM) and holds a Master’s degree in Public Administration from the John F. Kennedy School of Government at Harvard University. He is currently the General Director of Bancomext, the Mexican Bank for Foreign Trade. Previously, he served as the Executive Director of Institutional Affairs and Corporate Communication for HSBC Mexico and Latin America. Before that, he was the General Director of Financiera Rural, the government’s development agency in charge of the Mexican rural sector. He has also served as the Executive President of the Mexican Council of the Consumer Products Industry (ConMéxico). From 2000 to 2003, he was a member of the Mexican House of Representatives.

What is your incoming strategy?

President Peña Nieto believes that with an economy as open as the Mexican economy, with exports and imports being such a significant driver for growth, there should be no reason for Mexico not to have its own development bank for foreign trade. We need to continue financing exports, and today we have a loan portfolio of close to $7 billion and a lot of potential for growth. So what is financing exports? We are not only financing exports, we can also finance the production of goods and services. We also finance imports because we believe that they help Mexican industry to modernize and bring in new machinery and practices. We have seen many international firms coming to Mexico, and they bring with them skills, financing, and muscle power. Now, we have the strength to help Mexican firms in the international tendering process, so that when they want to go out and make an investment in Central America or they want to go down to South America, or even go and buy a company in Europe, we can help them. We also want to develop the global supply chain. Around 400-500 firms are responsible for about 70% of our exports; the big volumes are concentrated in a small number of firms. So if you want to export, most likely you will have to be part of a global supply chain. And so we have to be in Mexico. We are realistic about it and we want more firms and more SMEs to participate in these global supply chains. That is not easy because it is not only a financing issue; you really have to comply with quality and timing, so Bancomext will do its part in terms of financing, but the more we know about the supply chain, the more we can help businesses access other institutions. And finally, we have to increase Mexican content. If we export $300 billion worth of goods, and Mexican content is around 30%, we are only really exporting $90 billion.

How can SMEs access your funds?

We segment the market, and we tend to work directly with firms that need loans above $5 million. For firms that are borrowing less than $5 million, we often go through the financial system. SMEs are offered Bancomext products through their own banks. We work with many institutions that identify exporters and offer them our products. It is important to make this segmentation in SMEs because banks often don't know if they're lending to the owner of a firm or the firm itself, and it could easily be the case that the owner is using his or her personal credit card to finance the business, meaning rates of 30% to 40%. If the bank knew that it was financing an entrepreneur and not just a consumer, then the rate would be significantly lower. Thus, the more we know about the client and the more we segment, it is more likely that our products will be better suited to their needs. Our loan portfolio over the last two years has almost doubled in size.

How can SME transparency and consequent growth potential be increased?

The informality of the economy is a challenge. According to official numbers, more than 50% of our firms are a part of the informal sector. Firstly, as a government, we should do two things: we should offer every type of incentive for companies to formalize and open up, including punishments for those firms that refuse; we also have to work with them very closely and provide support in terms of training and letting them understand how the world works. They can then grow and become much more successful if they formalize and have access to credit.

“Around 400-500 firms are responsible for about 70% of our exports; the big volumes are concentrated in a small number of firms."

What is your outlook for Bancomext in 2014?

I am very positive about the outlook. I think that Mexico is a country that has been doing its work seriously in recent years. It has been somewhat overshadowed by the success of some other Latin American countries, such as Brazil, which has had a great deal of developmental success in recent years. However, once China's growth began to slow and commodity prices moderated, the expectation for growth from other countries began to decline and people suddenly started paying attention to Mexico.