LEON, Mexico - Seated inside their modest cinderblock house, Teresa Gonzalez and her husband paint small plastic sculptures depicting the Last Supper.

"Step by step, we're getting there," Gonzalez says.

Two years ago, she received a $80 micro-loan from Santa Fe de Guanajuato, a non-profit lending association created in 1996 by President-elect Vicente Fox, who was at the time governor of central Guanajuato state. Santa Fe, which has granted about $11 million in micro-loans to more than 40,000 enterpreneurs during the past four years, is seeking to increase family incomes by promoting small investment projects mostly run by women who have no access to traditional financial services.

While a growing number of private sector groups are offering micro loans in Mexico, the federal government has until now stayed largely on the sidelines, instead channeling credit to bigger companies through such development banks as Nafin or Bancomext. But that will almost certainly change with Fox, whose conservative National Action Party in July elections broke the tight political grip that the Institutional Revolutionary Party enjoyed for more than several decades.

Fox plans to replace Mexico's Commerce Ministry with a new Economic Development Ministry, whose priority will be the country's long neglected small industry. And Norberto Roque, Guanajuato's Minister of Economic Development, said he'll be joining Fox's team in October to design a social banking program that would take micro lending nationwide.

Fox got the micro bug from Bangladesh in 1995. Fox has provided no details yet about how he'll transfer the Santa Fe model to the country as a whole. But his participation in the Guanajuato project goes back to the very beginning, according to Jorge Farfan, general director of Santa Fe. Guanajuato's Roque says, Santa Fe was inspired by Bangladesh-based lender Grameen Bank, after Fox attended a conference given by Grameen founder Muhammad Yunus in 1995. "Fox came back with a 10-page document that he got from Yunus and we started working," said Roque.

The Santa Fe model is now spreading to other states, he added. The association requires credit recipients to form a solidarity group with 10 to 20 members, of which 80% must be women. The group acts as guarantor of the micro loans and is held responsible for any default. Santa Fe has a team of 80 advisors, who supervise the group's investment projects and are in close contact with recipients, minimizing default risks.

David Estrada, Santa Fe's head of loan collection, said the program focuses on women because they have always been excluded from credit opportunities and they demonstrate perseverance. "As men we may not like this, but it's real," said Estrada. "When women have an extra peso, they use it to help their children. Some men, instead, may chose to go for a drink with their buddies". Mexican women are proving to be pretty solid credits. Santa Fe's non-performing loans average 4% of its total portfolio, below the 6.2% default rate recently reported by the country's commercial banks.

Santa Fe is still losing money at this early stage, but its business plan is to be self-sufficient and not require government subsidies.

To take the Guanajuato experiment national, Fox will have to address legal issues, as micro lenders currently operate with no regulatory framework. His administration would also have to create an efficient army of loan collectors and set up funding mechanisms, including a secondary market for asset backed securities. "It's a nice project, but its implementation will be pretty difficult and plenty of little details have to be worked out", said Credito Familiar's Galan.

Still, the ideology already appears to be in place. Officials with Fox's National Action Party have criticized President Ernesto Zedillo's outgoing administration for focusing too heavily on subsidizing consumption, usually involving foodstuffs when addressing the needs of Mexico's poor. The incoming Fox administration, they say, will put greater emphasis on subsidizing productive investment projects.

By Santiago Perez, Dow Jones
Newswires, September 20, 2000.