The Report Company: How are the economic problems in Europe and the rest of the world affecting the potential of the credit sector in Mexico?

Gabriel Ramirez Fernandez: Mexico is not exempt from the world’s problems: Greece’s debt, unemployment in Spain and the United States, as well as elections and changes of governments. All of these factors create a complicated environment for the financial sector and the economy in general.

Fortunately the Mexican economy is growing and creating employment. We would like to see Mexico grow even more since we have a high birth rate, and many young people are now old enough to join the workforce, but we still have good macroeconomic data. The Mexican financial authorities show that the system is well capitalised, with double digit credit growth in different economic sectors.

INFONACOT is not a bank, but we present a capitalisation index similar to the banks – of approximately 16% - which is ideal for sustaining growth. Another factor that has helped INFONACOT’s growth is that we started off with a small base. If you analyse the consumer credit market, the value of this institution represents just 2 percent, so the potential is immense.

TRC: How many companies are currently affiliated with INFONACOT?

GRF: Today we have 58,000 affiliates, but the important thing is seeing how many employees they have. These companies have approximately 10 million employees who are our potential customers. Of those, there are 2 million with a current balance. These are revolving credits, and 30 percent of our customer base has used credit more than once in a five-year period.

Today INFONACOT must be a financial entity that offers a good service with good rates, which allows workers to decide how they are going to use their money. It is vital to have a financial culture and learn how to administer your capital, but this has to do with education. You as a financial entity cannot tell your clients what they should invest in.

TRC: How is Mexico’s economic growth changing the needs of your clients, and the type of credit loans in demand?

GRF: Today, the people do not need heaters; they need a new television or sound equipment. Let me give you an example; there are beaches just three hours away from Mexico City, but there are people who have never seen the ocean because they never had the money to go on holiday. Now we can offer them the opportunity. Most of our clients continue using credit to purchase domestic appliances, but those who already have those needs covered become second-generation buyers who can even demand private health care.

A year and a half ago we started offering personal loans, similar to the payroll check credit that banks offer. This service is very successful with median income workers. We have conducted surveys to see how our customers are using these credits, and nearly 16 percent are using them to pay other debts, thanks to the low rates that we offer. Another 30 percent use them for home improvements, such as remodelling the kitchen and/or bathrooms, which in a way are durable goods that strengthen the family assets.

TRC: What are your current default rates? What strategies do you use to ensure that clients pay on time?

GRF: Let me put it into context. Before the 2008-2009 crisis, 4 percent of INFONACOT’s customers failed to pay on time. As the unemployment rate grew during the crisis, the number of defaulters grew to 6.5 percent. But what with the growth in employment today, we now have only 3 percent of debtors.

We also established a very simple rule; if you ask for a credit for one year, you must have at least been working a year in your current job. A person that has been working three years in the same company has more stability. By applying this rule, we reduced the number of defaults in half.

70 percent of our customer portfolio earns less than 9,500 pesos a month, which is five times less than the minimum salary. 45 percent earn three times less than the minimum salary. Our rates go from 10 percent to 30 percent. How does it vary? It depends on your payment terms and how much of a discount you receive. If you compare our fees with those of other countries, our fees are high since we are still a developing economy.

TRC: How is technology facilitating credit access the majority of the population?

GRF: Today in Mexico you can open a basic account that shows the amount of transactions. With these, you can open an account and carry out transactions using your mobile phone. They are more sophisticated accounts, and in Mexico we have created systems to protect against identity theft.

Two months ago INFONACOT became the first financial institution where the user can receive his credit in cash, 100% online. You must have an electronic signature or “Firma Electronica Avanzada” (FIEL), which is used to pay taxes.

TRC: This goes hand in hand with banking and fibre optic technology.

GRF: Yes, the President recently spoke about giving the low income population the opportunity to buy computers. To achieve that, INFONACAT is offering credit with an annual preferential rate of 12 percent. If we manage to provide our population with access to technology using affordable interest rates, we will eradicate computer illiteracy.

TRC: How is INFONACOT helping to promote tourism?

GRF: This administration has very ambitious objectives. In the medium to long term, we want Mexico to become one of the most important tourism destinations in the world. We are also promoting domestic tourism in order to benefit from the revenue it generates. That is why we have modified our calendar by moving all festivities to Mondays, which allows people to travel those long weekends.

We have also signed agreements with travel agencies, hotels and transport companies, to accept our credit. Currently there are 1,500 companies that offer their services through us, and in 2010 we brought nearly 70 billion pesos to the tourism industry. During 2011 – Mexico’s Year of Tourism – and so far in 2012, we have brought in nearly 300 billion pesos. Our slogan was “Travel with your INFONACOT credit”. All of the states of the Republic helped us in promoting this initiative, and we organised big events with the Ministry of Tourism.

The goal is that you can use your INFONACOT credit at any destination, the same way you can use a MasterCard. We have experienced substantial growth thanks to tourism.

TRC: You attended the 2012 Expocompras Fair; what have been the results of the dialogue with small businesses?

GRF: Unfortunately, small businesses offer few benefits to their employees. INFONACOT credit is an option that does not cost the entrepreneur, but still allows the company to offer credit to its employees at a lower rate. The government stimulates the growth and development of small businesses by purchasing their products. At Expocompras we sowed the seeds that will allow workers to enjoy these options.

We are attending all events to which we have been invited, so as to offer these credits. We have signed agreements with some chambers of commerce, integrated by companies with less than 10 employees, to give them the option to offer these benefits, which generates employee loyalty.

TRC: You are listed on the Mexican Stock Exchange; what makes INFONACOT a good investment?

GRF: First our business model: a credit is granted and charged via payroll, which is well protected, safe, and clear. Secondly we are a government entity, where the government is our biggest stakeholder. Thirdly we hired rating agencies, and certified INFONACOT with Financial Asset Management rating. All of our business processes, from the credit concessions to its collection, are audited. That has allow us to achieve a higher position in the Asset Management Ranking, which speaks volumes to investors

We also have the ISO 9000 and are certified as a socially responsible company. We are a state owned enterprise, but we do not want to be seen as part of the government. We want to be seen as a solvent financial entity, recognised by our own merits, and not for being part of the government. All of this has made us very successful in the markets. Several banks have offered us lines of credit portfolio, and we are planning to make small issuances in the international markets outside of Mexico.

TRC: Would this happen in 2012?

GRF: Not this year, but we are giving it consideration in the next one or two years. For example INFONAVIT has already made two international issues that have behaved very positively, thus generating interest. In our case, our issues will be small. The government does not give us an annual budget. It gave us an initial capital, but we have to fund ourselves.

TRC: After a successful 2011, what are your expectations for the end of 2012?

GRF: Last year we placed nearly 7 billion pesos, with 1,200,000 credits. We were the second or third credit entity that granted more credits for consumption. This year our goal is to reach 8 billion. The growth rate is still not as high as last year’s, but we will continue growing in double digits.