Supporting Inclusive Economic Growth in Mexico
By Jorge Rubio Nava, Citi Inclusive Finance and Humberto Cabral, Citibanamex Capital Markets August 01, 2017 01:00 PM
Last week, Citibanamex successfully priced the country’s first Social Bond on behalf of Mexico’s Development Bank (NAFIN). This was a 5-year MXN$4,000 million (US$229 million equivalent) bond issued in pesos into the Mexican debt market, which received over MXN$13,000 million in investor demand. Social Bonds, or “Social Impact Bonds” as they are sometimes known, are innovative financing mechanisms that enable investors to invest in companies or projects focused on delivering specific social outcomes.
The new Social Bond will help finance a range of important projects across Mexico, from job creation through small enterprise development to investments in energy efficiency that will reduce utility costs for low-income households. Other projects will focus heavily on strategies to expand access to affordable financial products and services. For example, one of the stated social objectives is to expand access to responsible credit for young entrepreneurs either opening a business or looking to growing their current business.
This is not the first social bond Citi has worked on. In 2014, we priced a $500 million four-year Education, Youth and Employment (EYE) bond on behalf of The Inter-American Development Bank (IDB or IADB) with a financing structure created with the support of Citi Inclusive Finance and a first for the IDB. Proceeds from the note sale have been directed to programs that build human capital through early childhood care and education, formal primary and secondary education, English-as-Second-Language (ESL) as well as labor market placement and vocational training in Latin America.
In March of this year, Citi also co-led the placement of a $500 million Global Social Bond for the International Finance Corporation (IFC), a member of the World Bank Group. This bond was designed to finance projects that benefit women-owned enterprises and low-income communities in emerging markets. Financed initiatives range from companies that buy from small holder farmers, provide utilities for low-income households, and offer affordable health services, education or housing to underserved segments of the population. The IFC will also use the proceeds of the bond to finance financial institutions that lend to women-owned enterprises around the world.
This latest bond priced by Citibanamex represents a major milestone for Mexico, which has made financial inclusion a key priority of its economic growth strategy. In 2016, Enrique Peña Nieto, the President of Mexico, launched the country’s National Financial Inclusion Strategy, which aims to accelerate access to financial services. Currently, only 44% of adults in Mexico own a bank account, which results in too many Mexican consumers and entrepreneurs using unreliable and often expensive products and services to achieve their financial goals.
Citi’s recently-announced US$1 billion investment in Citibanamex was not just a significant demonstration of the bank’s ongoing commitment to Mexico, but also an opportunity for Citi to increase its support of Mexico’s ambitious financial inclusion plans. Citibanamex has created a dedicated division focused on financial inclusion overseen by the CEO. And in a joint-venture with mobile network operator América Móvil, Citibanamex created the Transfer account, supported by a distribution partnership with convenience store chain OXXO. Transfer is a simplified digital bank account that people can open in one of OXXO’s 15,000 stores nationwide, and can then access funds through their phones or debit card. By the end of this year, some 6.5 million Mexicans will have set up a Transfer account – 85% of whom did not previously have a bank account.
Earlier this month, Citi received Euromoney magazine’s inaugural award for World’s Best Bank for Financial Inclusion. Proud as we are of that achievement, we know that ensuring millions of low-income and underserved consumers and entrepreneurs gain access to financial services cannot be accomplished by any one bank alone. Few countries demonstrate this reality better than in Mexico. Our innovative collaborations in Mexico and the progress we have made so far are the clearest illustration to date that only by working together will our collective efforts help build more prosperous and inclusive economies.