CGAP Analysis of Low-Income Households in Mexico Matches Financial Products with Livelihoods and Income
Mexico City/Washington, D.C., 5 June 2012 /PRNewswire/ — CGAP recently conducted a study of 426 Mexican households with income below $1,440 per month in an effort to better understand the financial habits, needs and wants of low-income customers. The nationally representative survey helped segment customers into six groups with common needs and behavior towards financial services. The study highlights in particular four lower-income groups – those living on US$4-10 per day (seasonal workers), US$10 per day (entrepreneurs), US$15 per day (informal salaried/wage workers) and US$12 per day (formal salaried workers) – and found that even across these income segments, households’ financial concerns and aspirations were similar.
The study notes that meeting education expenses for children and managing unexpected medical costs were among the top financial concerns across all segments. Similarly, better housing, ability to start a new business, finding a better job and achieving financial stability were aspirations mentioned across all segments, while the extreme lower income segments remain focused on meeting basic needs.
The survey results helped clarify what kind of financial products would work best for each of the segments identified, highlighting specific differences between each group. For example, formal salaried workers, with stable income, need a broad portfolio of savings products with easy access to credit to facilitate financial planning and achieving goals; while entrepreneurs, who earn a variable income, need transactional and payments products that they can use to put away money temporarily as a means to manage irregular cash flows, as well as short-term credit lines to respond to business opportunities.
“The use of informal savings and credit options are common across all groups of people,” notes Xavier Faz, lead researcher. “By examining the needs of individual customers, institutions can be more effective at tailoring products that link more directly to people’s lives and ultimately increase the likelihood of designing a successful offering that can be commercially sustainable.”
Reaching the poor in Mexico with formal financial products is a challenge. Mexico has 22 million mid- to low-income households (85% of the population), 52% of which have an account with a financial institution. However, 90% of these “banked” individuals habitually choose informal options for savings.
“We’re hopeful that segmenting the market along the lines of this research can become a more common element of business model and product design,” said Paul Breloff, a contributor to the research. “Ultimately, this could improve the range and quality of financial services available to the mass market in Mexico.”
The research brief, A Structured Approach to Understanding the Financial Services Needs of the Poor in Mexico is now available on CGAP.org.