Bridging the Finance Gap for Women Entrepreneurs

23. Mexico: Policy insights on digital financial literacy

Professor Rosa Nelly Trevinyo-Rodríguez
R.N. Trevinyo-Rodriguez & Asociados

Background

Globally, more than 70% of women-owned small- and medium-sized enterprises (SMEs) have inadequate or no access to financial services, leading to an estimated credit gap of USD 1.4 to 1.7 trillion (IFC, 2022[1]). Without such access, women business owners face difficulties growing their firms.

Fintech holds potential for improving the access of women to finance for entrepreneurship. Recent evidence highlights the role fintech companies have had in enabling access to finance for sectors under-served by traditional banking institutions, including women-owned SMEs (OECD, 2022[2]; OECD, 2023[3]; APEC, 2022[4]; APEC, 2023[5]). However, despite the potential for addressing financing gaps, fintech also comes with the risk that gaps may be increased. One risk is that the reliance on technology in decision making by lenders and investors could reinforce financial exclusion for women business owners. Even if technology is seen as neutral, digital tools are designed and implemented by individuals (mostly men) with their own preferences (Sebastián, Khan and Vinck, 2022[6]). Thus, it is likely that algorithms are biased towards collateral, business financial history and projects with high levels of growth and profits. This puts women entrepreneurs at a disadvantage because they typically lack high-value assets, their businesses use fewer financial services, and their firms tend to be smaller, slower-growing and less profitable than their male counterparts (Malmstrom and Wincent, 2022[7]; Heng and Tok, 2022[8]).

There are currently no specific incentives for investing in fintech companies in Mexico. However, strengthened by the 2018 FinTech Law, the country has emerged as one of Latin America’s most important fintech economies (AFI, 2023[9]). The 2018 FinTech Law is an overarching law combining the various activity-specific regulations into a single document. It covers both established and novel fintech services, setting the stage for open banking, electronic wallets, big data analytics, crowdfunding, cryptocurrency, e-money, robo-advisory and regulatory sandboxes. Secondary regulations have been rolled out. In 2019, Mexico’s Central Bank (Banxico) established legal provisions regarding virtual assets. In 2020, Banxico published the first rules of the open banking model. There are, however, other provisions that need to be implemented, such as specific standards for financial entities to share their transactional data with third parties securely (open finance).

Mexico is an under-banked economy overall. Yet over 75% of the population has access to a mobile phone, allowing fintech to create an efficient business model based on remote digital access. Mexico’s fintech market experienced about 18% compounded growth from 2019 to 2023 (Finnovista, 2024[10]). Furthermore, the country has seen a rise in digital banks, like Klar, Nu, Fondeadora, Stori and Kubo, and the ongoing nearshoring trend presents opportunities for fintech companies specialising in the export business sector (i.e. factoring and invoice lending, currency exchange, B2B collections management).

Though this may seem encouraging, most of these companies focus on those who already have access to banking services and few incorporate a specific focus on women entrepreneurs. One such company, Konfio, is a fintech player that has gained rapid popularity among women-led SMEs, which make up 28% of all SMEs in Mexico. This company offers credit and financial solutions to SMEs with limited access to financial services, and recently received a USD 10 million term loan from Citi, the Ford Foundation and the U.S. International Development Finance Corporation (Fredes, 2022[11]) to support women-owned and women-led firms.

Yet, women-owned SMEs in Mexico have not shown widespread digital finance adoption (Tost, 2021[12]). In a country where more than 81% of women own a mobile phone (INEGI, 2023[13]), only half of them have a bank account (AFI, 2023[9]). While there may be several causes for this financial exclusion, women SME owners’ lack of digital financial literacy plays a part (Edelshein, Johnson and Pedroza, 2021[14]).

Policy issue: Digital financial literacy and financial exclusion

The gender gap in fintech use is due to differences in attitudes and preferences towards technology between men and women (Chen et al., 2021[15]). In Mexico, students are more likely to adopt technology during their bachelor’s degree (Dweck, 2020[16]). Nonetheless, a mere 20% of Mexican women attain a bachelor’s degree, which is below the OECD average (OECD, 2023[3]). Moreover, cultural norms reinforce the idea that Science, Technology, Engineering and Math (STEM) are male fields. Evidence shows that among STEM fields, women are the least represented in automotive, marine and aeronautical engineering (3%), electricity and energy generation (7%), civil engineering and construction (11%), electronics and automation (7%), and information and communication technologies (23%) (National Institute of Geography, 2023[17]). These gender gaps are important because digital financial literacy not only requires numeracy and financial understanding but also digital knowledge, which is the cognitive and technical skills to use technology (Ravikumar et al., 2022[18]). This lack of digital knowledge hampers women entrepreneurs’ ability to grow their firms, given that women business owners with a higher degree of digital financial literacy are more likely to engage in formal banking channels and other financial technology services (Hasan et al., 2023[19]).

While boosting financial literacy has been a major goal in Mexico since 2011, when the government established the National Council for Financial Inclusion, few efforts have advanced digital financial literacy. Despite a sharp increase in the country’s internet connectivity, digital financial exclusion for women is higher than in the average OECD country (Maravalle and González Pandiella, 2022[20]). Studies show that women SME owners have limited use of digital financial services and highlight that the lack of take-up is in part due to widespread digital financial illiteracy, a lack of trust in digital financial services, and a strong preference for cash (AFI, 2023[9]; Edelshein, Johnson and Pedroza, 2021[14]). Women entrepreneurs remarked they often gained digital financial literacy and capabilities from their family members, clients and suppliers, and that they were unsure where to get help so as to develop their digital financial skills. They also cited discomfort with using their mobile devices to manage their finances and aversion to security risks, including card cloning and lack of privacy. As financial services shift to digital channels, investment in women entrepreneurs’ digital financial skills must complement traditional financial literacy education. Women entrepreneurs who lack digital financial skills are excluded from accessing affordable, alternative forms of financing, such as credit offered by fintech companies, and from seizing business opportunities that could allow them to reach scale (OECD, 2023[21]).

As an example, the involvement of women-owned SMEs’ in online activities, including e-commerce, is generally limited (UN, 2023[22]). In Mexico, more than 75% of total SMEs have internet access (Valverde, 2024[23]), but only 7.3% conduct online sales through a website (INEGI, 2023[13]). From these 7.3%, less than 0.1% are women-owned firms (Castro, 2021[24]). Given that women entrepreneurs typically start their digital journeys by adopting social media and mobile payments followed by accessing digital payments before setting up online stores and/or operating on online marketplaces (Edelshein, Johnson and Pedroza, 2021[14]), digital financial literacy and access to online payment systems are essential (Aidis, Mohiuddin and Griffin, 2020[25]). Barriers for women entrepreneurs in e-commerce include limited digital financial literacy, limited access to credit and greater barriers to entry into high-value added sectors (UN, 2023[22]).

Conclusions

There is a clear gender gap in the reported use of fintech products and services in Mexico. One measure that could help address the gap would involve complementing the financial education elements already in the mandatory school curricula set by the National Ministry of Education (SEP) with new efforts on digital financial knowledge and skills. In addition, future National Policies for Financial Inclusion could prioritise financial literacy and digital financial literacy for entrepreneurs. This could be coupled with initiatives aimed at building women-owned firms’ digital capabilities – for example, through incentives to adopt digital payments.

In parallel, the National Banking and Securities Commission (CNBV) and Banxico, which oversee the development of digital financial services in the country, could consider launching extensive education initiatives to encourage understanding and acceptance of digital technologies. They could also partner with fintech providers and non-for-profits to design customised financial products that meet the unique needs of women entrepreneurs as well as to develop communication campaigns that help women SME owners interact with fintech products and services. Furthermore, the CNBV and Banxico could develop specific guidelines for financial technology providers to ensure responsible disclosure and product marketing. This could be combined with monitoring of fintech providers and communicating results to the public.

Finally, government entrepreneurship policies could consider supporting women-owned SMEs seeking to access online trade by developing specific funds to train them in digital financial skills and business development. A match-funding modality, where governmental funding is matched with crowdfunding campaigns, could be adopted.

References

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