Entrepreneurship Policies through a Gender Lens

Mexico

By Rosa Nelly Trevinyo-Rodriguez, Trevinyo-Rodriguez & Asociados

Background

Entrepreneurship policy is relatively new in Mexico. The Entrepreneurial Development Plan, Mexico’s first formal policy to support entrepreneurs was launched in 2001. It aimed to boost economic development, growth and social welfare, facilitate an entrepreneurial culture and “increase competitiveness among the companies of the country, particularly the micro, small, and medium size companies” (Derbez, 2001: 05). An initial step outlined in the plan was to make it easier to start a business by amending burdensome business regulations, with a second step designed to introduce support programmes such as incubators, accelerators, entrepreneurial education and loan guarantee programmes. In 2007, key target entrepreneurial segments were identified: nascent entrepreneurs, micro-enterprises, SMEs, “gazelles” (fast-growing SMEs) and tractor firms1 as well as salient services offered by public policies — financing, consultancy, management, commercialisation and innovation. In 2013, the National Entrepreneur’s Institute (INADEM) was created as a decentralised government entity reporting directly to the Ministry of Economy. INADEM’s main responsibilities included the design, implementation and coordination of national policies for entrepreneurs and SMEs. Established agencies such as Nacional Financiera (NAFIN) – a development bank managing Mexico’s largest loan guarantee programme, and The National Council of Science and Technology (CONACYT) – an agency promoting scientific and technological activities, reinforced these policy efforts. Additionally, in 2018, amendments were made to the General Law of Commercial Companies (LGSM), and new laws2 were introduced. Yet, in 2019, legislators approved INADEM’s dissolution3 with no replacement initiative in place, leaving a gap in the Mexican entrepreneurial ecosystem.

There is currently no dedicated policy for women’s entrepreneurship in Mexico. However, the 2001 Entrepreneurial Development Plan aimed to “release the huge potential of [both] men and women” (Fox, 2001). To fulfil this goal, INADEM launched several large-scale programmes and funds explicitly targeted at women entrepreneurs between 2013 and 2018. These included Women Moving Mexico (Mujeres Moviendo México), which provided entrepreneurial training and advice to 42 000 women micro-entrepreneurs through 7 centres; and SME Women (Mujer PYME) that financed 9 622 companies led by women. In addition, INADEM launched a seed fund for high-impact, innovative and/or export-oriented firms, whereby women applicants received additional points in some proposal calls as an affirmative action measure aimed at closing the gender gap. INADEM also supported an annual national woman entrepreneur award, and collaborated with the National Institute of Women (INMUJERES4) to provide educational programmes to develop woman-led micro-businesses.

These efforts paid off. In 2014, women owned 30% of microenterprises, 22% of small, 13% of medium and 7.8% of large firms formally registered in Mexico (INEGI, 2015a). Three years later, in 2017, numbers were quite different. At that point, women owned 28% of microenterprises, 24% of small firms, 13% of medium-sized companies and 9% of large businesses5 (INEGI, 2018). These data illustrate a transition of some micro-enterprises to small-firms, as well as the creation of new small businesses. The latter is consistent with a multiannual evaluation (2014-17) conducted by the World Bank of the Women Moving Mexico (Mujeres Moviendo México) programme which concluded that women micro-entrepreneurs participating in the training programmes acquired higher knowledge on business related concepts and adopted formal managerial practices that led them to increase their revenues and productivity, “which was accompanied by an expansion of their businesses” – growth in size (World Bank, 2017). Correspondingly, the NAFIN 2018 annual report indicates that credits and funds funnelled to support the SME Women programme (Mujer PYME) escalated between 2015 and 2018 – from 23 credits for the amount of MXN 18 million pesos in 2015, to 5 782 credits for the amount of MXN 8 444 billion pesos in 2018 (NAFIN, 2018).

In spite of these initiatives, women-owned businesses are still typically smaller and use fewer financial services than men-owned firms (de Haan, 2016; World Bank, 2019). While there may well be several different reasons for this phenomenon, women’s lack of financial literacy and financial inclusion play a role (Hung 2012; OECD, 2019).

Policy issue: Financial literacy and financial exclusion

In Mexico, parents and schools are the first and most important sources of financial literacy6 (INEGI, 2015b), exerting a critical role in inhibiting or supporting women’s financial learning. However, societal and cultural factors (i.e. attachment to traditional gender roles) continue to have an impact on women’s levels of financial education, exposure and opportunities. Among a survey of 2 022 Mexicans, men were found to be more likely than women to have been taught money management by their fathers (Reddy et al., 2013). With regard to school education, Mexican girls report a marked deficit in mathematical skills compared to Mexican boys7 and to the OECD average (OECD, 2019b). These gender gaps are particularly important as financial literacy depends on numeracy or arithmetic (Villagómez et al., 2017). This lack of mathematical abilities hampers women’s business competence, and hence, the growth potential of their firms given that financially literate individuals do better at budgeting, saving money, controlling spending, contracting debt and long-term planning (Hung, 2012). While financial literacy is globally acknowledged as an essential life skill, and G20 leaders recognise that it requires lifelong learning that starts in childhood (OECD, 2019c), most Mexican girls and women are still lacking the financial knowledge to improve their well-being, social-mobility and economic future (World Bank, 2019).

Thus, despite a sharp increase in Mexico’s financial infrastructure, financial exclusion for women is the highest amongst OECD countries (OECD, 2017). This may be due in part to their lower levels of financial literacy, which is needed to make full use of the available infrastructure, as well as to other context-specific barriers, such as: gender-biased loan allocations and credit scoring; lack of high-value assets8 and collateral; weaker credit histories, unfavourable lending policies9 and a higher cost of funding due to smaller loans, shorter repayment periods and higher interest rates (OECD/EU, 2018; Chin, 2017). Only 8% of women in Mexico report having used a bank loan to fund their business compared to 16% of men (OECD, 2018). Needless to say, this lack of accessible, affordable funding limits the competitiveness of women-owned firms, preventing them from seizing business opportunities that could allow them to achieve scale (Fareed et al., 2017).

As an example, although becoming a corporate supplier catalyses growth while also increasing revenue, financial stability and market credibility, the potential of women-owned enterprises to participate in corporate procurement opportunities is limited (Chin, 2017). In Mexico, 27% of the country’s workforce is composed of business owners, out of which 9.7% represent women entrepreneurs. Yet, from this 9.7% only 0.005% of the Mexican workforce is made up of women employing at least 50 workers (Lundy and Bowdish, 2014), which represent the type of small firms that corporations usually buy from10 (Chin, 2017). Given that most formally registered women-owned firms in the country are micro and small-sized (INEGI, 2018),11 and that they are financially underserved or unserved (Buckland et.al., 2019), women’s financial exclusion coupled with other structural impediments such as limiting contract sizes to large quantities and requiring specific technical qualifications and capabilities in the area of technology, prevent women business owners from accessing and fully participating in the corporate supply chain. Moreover, corporations’ financial requirements for suppliers, such as audited financial accounts, performance bonds, bid guarantees, insurance and fees for tender documents, are too onerous and time consuming, putting women-owned firms at a disadvantage with respect to bidding and compliance costs as well as in their ability to absorb the impact of delayed payments (Chin, 2017). The latter creates a self-perpetuating cycle, thus exacerbating negative effects in women’s financial inclusion and in their firms’ access to growth possibilities.

Conclusions and recommendations

Key measures for addressing Mexican women’s lack of financial literacy and financial exclusion could include incorporating financial education through the existing, mandatory, academic curriculum set by the National Ministry of Education (SEP) from pre-school to upper secondary education.12 This should be coupled with strengthening the quality of instruction in mathematics at all educational levels. At the same time, awareness raising measures should be introduced to encourage families equalise financial learning opportunities for both boys and girls. In addition, affirmative actions or gender quotas in credit approvals, grant/loan allocations and entrepreneurial support programmes could be instituted (and audited). Current financial policies might also consider promoting a women-specific preference approach in commercial banks’ loan underwriting and pricing standards. In parallel, policies designed to support entrepreneurship in Mexico should consider developing women-owned firms’ focused funds to financially support and train women business owners seeking access to corporate supply chains.

In summary, in spite of substantial developments in Mexico’s entrepreneurial ecosystem since 2001, more needs to be done to advance women’s entrepreneurship. Since INADEM’s dissolution in June 2019, the query remains as to whether the current government will build up the existing entrepreneurial ecosystem, especially when it comes to growing women-owned firms, and if so, through what combination of policy initiatives.

Recommendations for Mexico

• Incorporate financial education throughout the existing, mandatory, academic curriculum.

• Establish affirmative action procedures or gender quotas in loan/grant allocations, credit approval processes and entrepreneurial support programmes. Promote a women-specific preference approach in commercial banks’ loan underwriting and pricing standards.

• Develop women-focused funds to support and train women business owners who are seeking to access corporate supply chains.

References

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