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Credit in Mexico.

Addressing the subject of credit in Mexico means referring directly to the Mexican financial system, highly regarded as the quintessential broker between saver and borrower. Mexico today, as a player in international globalization, counts its challenges as a benefit. In the face of accelerated commercial growth, countries such as Mexico require a financial system that is both sophisticated and adequately meets the demands of a country's growing financial operations.

History of Mexican Banking

During the period preceding the Conquista, especially among the Aztecs, barter was used as the principal financing system. It was an informal mechanism by which payments were made in-kind, most often involving the existing government in its role as overseer of lands, labor, general productivity, and the redistribution of wealth.

The colonial era may be divided into three periods. The first is characterized by the plundering of the Americas. The second is to be found in an economically depressed Europe and is characterized by a period of political realignment. The third lays the foundation for the formal Mexican financial system and is characterized by the development of credit organizations whose principal purpose was to support the church while minimizing the influence of businessmen. During this period, in 1775, the "Spiritual Pawnshop," the first secured credit organization, was established. Not much later came "The Mint;" the "Banco Nacional de San Carlos" was founded around 1782; and, in 1784, the "Mining Procurement Bank", North America's first mercantile bank, was established.

With independence came the development of commercial trade and credit mechanisms and their implementing institutions. The latter included the founding of the first Banco de Avio, the establishment of the Banco de Amortizacion de la Moneda de Cobre in 1837, the National Savings Bank of Monte de Piedad in 1849, the Code for Trade and Commerce in 1854, and the establishment, in 1864, of the first commercial bank--the Bank of London, Mexico, and South America, authorized to accept deposits, give credit, issue currency, and provide business people with those services necessary to facilitate foreign trade. Then, in 1881, the National Mexican Bank was founded. The General Law for Credit Institutions was promulgated in 1897, regulating the issuance of all currency as well as credit. During this period, credit institutions were classified as credit issue banks, lending banks, mercantile banks, or general depositories.

Subsequently, from 1897 to 1924, political and economic events brought disorganization to the financial system.

From 1924 to 1976 various key events occurred in the Mexican financial system. These included a reorganization spearheaded by the first Banking Congress; the 1925 Credit Institutions and Banking Houses Law, as well as the statutes for the Bank of Mexico; the establishment of the National Bank for Agricultural Credit in 1926; both the National Mexican Bankers Association and National Banking Commission were founded in 1928; the Credit Credentials and Transactions Law was passed in 1932; and the National Urban and Public Works Mortgage Bank was created in 1933. During the depression of 1934-1937, national economic development organizations were the vogue; these included founding the National Financing Agency, National Bank for Communal Property, and the National Bank for Foreign Trade and Commerce. Subsequently, newly established banks were very specialized in their services.

The period 1976-1982 saw a number of developments, including multiple banking services; the introduction of petrobonds; the establishment of new stock exchanges; and the presentation of federal government treasury certificates (CETES), to be used as financing mechanisms. This period also witnessed strong economic growth based on the petroleum industry (with roots predating 1981), while the stock market took on added importance as a mechanism for finance and alternative investments. Finally, 1982 stands out as the year in which Mexico nationalized commercial banking.

Credit Transactions and Activities in Credit Organizations

The Mexican financial system, especially commercial and development banking, offers a wide range of products and services which play a key role in national development efforts, including personal loans, inventory, discount transactions, collateralized loans, current account credit, loans for durable consumer goods, inventory credit, credit with real estate collateral, loans collateralized with industrial inventory, financial factoring, financial leasing, general leasing, and endorsed/guaranteed credit.

At the same time, a wide variety of similar services are available that may be used with both domestic and foreign financial institutions, including commercial paper, collaterized bonds, commercial europaper, installment plan payments, euronotes, American Depository Receipts (ADRs), bonds, eurobonds, and investment certificates.

Given its on-going growth and product development, the Mexican financial system shows great potential. In the past several years, Mexico has been gearing up to implement highly sophisticated operations, such as turnkey projects and customized systems. Both of these use a number of the financial instruments mentioned and often result in the development of new products. Mexico depends on its capabilities to the fullest extent; a clear example of this dedication is in the Mexican financial system's North American and European alliances, created to bring financial support to its diverse projects.

M.A. Javier Cruz Coello is the director of projects and syndicated credits for Comermex Bank, Mexico City, Mexico.
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Author:Coello, M.A. Javier Cruz
Publication:Business Credit
Date:Mar 1, 1994
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