Mexico's Credit Guarantees Program: Financial Inclusion and the Promotion of Rural Development
Palao Mendizabal, Agustin
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This study evaluates the efforts of Mexico's public policy to promote private financial access to small rural businesses through credit guarantee schemes (CGS). Private financial intermediaries do not have enough incentives to invest in the rural sector. A credit guarantee system provides such incentives by backing the credits issued for rural enterprises. Financial intermediaries and public trust funds share credit risks to promote the transition from rural peasant economy to modern commodity production system. Adjustments in credit guarantee policies are evaluated in this research. Interrupted time series explores whether financial access improved after the introduction of the FONAGA program. A reduction in the average amount per guaranteed operations suggests a shift in the type of program beneficiaries. More small and basic rural producers are being included in the CGS. Subsequently, the study explores if CGS promoted rural business transition by analyzing levels of agricultural production efficiencies via stochastic frontier analysis (SFA). Efficiency model specifications for beans, corn, sorghum and wheat showed that efficiencies did not improved significantly due to the inclusion of poorer producers in the agricultural system. Finally the CGS provision is spatially evaluated by looking at municipalities with high levels of poverty and checking whether the public program provides credit guarantees to the most in need rural business. FONAGA was able to influence previous program FEGA to allocate credit guarantees in impoverished regions.