The Mexican Financial System
Companies have had difficulty in obtaining resources through the national financial system by the limited availability of them, in particular by the size of the Mexican financial system, which measured as a share of GDP reached almost the same level as in 1994, placing the Mexican financial system in a low development level compared to international standards.
One of the major proposals of the previous administration, was to implement regulatory measures to the Mexican financial system and to increase resources for productive projects through development banks, if commercial banks do not lend money to entrepreneurs Mexican owners of SMEs, then would the Federal Government.
The difficulty in obtaining resources is mainly because most of these resources are absorbed by the public sector. Between 1995 and 2000 the Public Sector Borrowing Requirements (PSBR), represented over 55% of the flow of financial savings in the economy.
“The financial savings is defined as the monetary aggregate M4a minus the sum of notes and coins held by the public. M4a Considering the size of the financial system measured as a percentage of GDP. “[6]
The poor development of the SFM over the strong absorption of resources by the public sector, resulted in a very limited amount of resources available to finance private investment projects.
Although the financial savings, as a proportion of GDP, remained constant between 1995 and 2000, during that period has made progress in the sanitation sector. Following the 1995 crisis, government authorities concentrated their efforts on stabilizing the financial sector, strengthening the supervisory and regulatory mechanisms, supporting users of the system to prevent the loss of their savings and promoting a comprehensive reform of financial system to expand the availability of financial resources to the private sector more efficient and competitive conditions.
The lack of traditional lending has made different types of alternative financing mentioned in this chapter (especially credit providers), the main engine of the national economy, but as in any string, if a link bursts, it breaks entire chain. When one of the members of the chain of credit provider does not pay, the other members will not have resources to pay its own suppliers and the chain collapses. Businesses, with this alternative credit basis, are subject to a very precarious and tend to close their doors when the lack of credit is extended for more than 90 days.
The professionals who offer our services to businesses, we need to know these and all possible funding alternatives for the purpose of promoting its use and exploit all the advantages possible for SMEs to develop and grow.
The same Bank of Mexico in its annual report acknowledges that while a decade ago 65% of finance companies was granted by banks, currently only accounts for 35%, equivalent to 8.9% of Gross Domestic Product (GDP) level similar to that observed in the mid-eighties.
A lack of traditional banking credit, alternative sources of funding come to light and take strength in business, becoming part of their organizational culture. The risk for banks that want to offer credit when necessary, the client will say “no thank you very much, I’ve realized that I do not need” and continue to base their growth in flimsy structures unsecured loans.
But the future is promising as it has a very large potential market made up of SMEs are not now subject to bank credit.
The great advantage of this type of financing is passive and does not generate the process, once they are approved the first contracts, become revolving lines of credit according to the needs of each individual customer with which documents can be deducted it deems necessary or its entire portfolio of accounts receivable.
Factoring has become popular worldwide as a desirable method that allows the seller to cash before maturity, provides a high degree of efficiency in the company since at all times is an increase of liquid assets.
It is estimated that overall, SMEs generate sales by $ 415,000 million dollars and most qualify for liquidity through its accounts receivable. Contrary to what happens with traditional financing, factoring specializes in small and medium firms that usually have a weak market position, high debt levels and did not have much capital.
The method is comprehensive, and presented 14 common types of factoring, which allows its use in accordance with the characteristics of the company, is an ideal solution that allows the company, if used early, get rid of accounting work and legal relationship with the Accounts Receivable.
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