2004 - Insufficient Funds: The Demand for Banking Services in Mulegé, Baja California Sur, & Opportunities for Community Development

The Demand for Banking Services
in Mulegé, Baja California Sur,
& Opportunities for
Community Development

Developed by Crossborder Business Associates
for the International Community Foundation

June 2004

Insufficent Funds: The Demand for Banking Services in Mulegé,
Baja California Sur, & Opportunities for Community Development

Table of Contents

Introduction & Background p. 2
About Mulegé 2
Banking in Mexico: Crisis & Evolution 3
The Unbanked in the U.S. 4

Banking In Mexico: Today & Tomorrow p. 5
Bank Branches 5
Banco Azteca: An Option for Mulegé 6
ATM Access 6
Remittances 7

The Demand for Banking Services in Mulegé p. 8

Detours to Economic Growth p. 10
Missed Sales 10
Trips to Santa Rosalía 11
Missed Money Transfers 11

Mulegé’s Challenges p. 12
Challenges to Banking? 12
Mulegé’s Larger Challenges 13

Conclusion p. 15

Appendices & Special Thanks p. 16

This report was developed by Crossborder Business Associates (www.crossborderbusiness.com)
under contract with the International Community Foundation (www.icfdn.org). While the
findings presented in this report are based upon research made by CBA, and review of best-
available information, neither Crossborder Business Associates, the International Community
Foundation, nor any of their principals, are liable for any activities undertaken as a result of
the information presented herein .

Insufficient Funds: the Demand for Banking Services in Mulegé, BCS page 1

Introduction & Background

Access to funds and banking services is an often-overlooked convenience and benefit that
the majority of citizens in more-developed economies take for granted. The majority of
global citizens, however, and those throughout Latin America (including Mexico), have
relatively little access to even basic financial services, creating a braking force on many
regional economic development efforts.

This study, sponsored by contributions made to the International Community Foundation
(ICF), was developed to assess one community’s situation: the town of Mulegé, Baja
California Sur. While this initial assessment of Mulegé’s need for banking services is
focused on this one specific community, the issues and lessons that can be drawn apply to
much of Baja California Sur (BCS), many other areas of Mexico, and even to rural areas of
parts of the United States. The fact is: despite many advances in the financial sector,
many lower-income households in rural, and even some urban, settings still have
insufficient access to banking services.

In the case of Mulegé, the lack of banking services in the community increases local costs
and reduces tourism spending within the community. However, it isn’t just the multiplier
effect of missed tourist expenditures in the community that is absent as a result of the
lack of banking services – there are also other gaps, many of which will be touched on in
the course of this report.

About Mulegé

The town of Mulegé is
located along the
Northeastern edge of
Baja California Sur, and
it makes up one of
several towns that are
part of the municipio
(municipality) of Mulegé.
The capital of the
municipio is actually the
city of Santa Rosalía,
located approximately
40 miles to the north.

Although the entire
municipio has
approximately 46,000
residents officially, less
Map courtesy of the State of Baja California Sur
than 8% of these (or


approximately 3,500), live in the town of Mulegé. According to local estimates, at any
time there are likely 200-300 additional “locals” made up primarily of U.S. retirees or
part-time residents.

Similar to other regions of Mexico, about one-
third of the population is of children less than
15 years of age; and there are approximately
1,200 households (including those of part-time
residents) in the broader Mulegé community.
While income levels can generally be
classified as lower- to middle-incomes in
Mexico, there is little evidence of extreme
poverty within the community – in part, it is
likely, because of Mulegé’s relatively stronger
economy (in comparison with other rural
areas of Northern BCS).

Despite the relative strength of the local economy, and the image of Mulegé as a tourist
destination for travelers to Baja California Sur, there is neither a bank nor an Automated
Teller Machine (ATM) in the community. Banking services must be accessed either in the
city of Santa Rosalía, or (further away) in the city of Loreto.

Banking in Mexico: Crisis & Evolution

Understanding why no bank is located in Mulegé, and why banking access is limited in rural
areas of Mexico, requires an understanding of the historic disruptions that Mexico’s banks
have faced even in recent years. Much of Mexico’s regulatory framework for financial
services has been in place only since the mid-1980s, with significant reforms and
improvements happening less than 10 years ago.
Historical CETES Interest Rates
After a period of stability and growth, Mexico (28 day rate, annualized)

experienced a major economic crisis in the early- 180
160
1980s, resulting not only in the nationalization of
140
banks in 1982, but also a spectacular increase in 120
interest rates (see graph at right). Stability in 100
% Rate

Mexico’s banking institutions returned somewhat by 80
the early-1990s, as mergers and consolidations cut 60
the number of banks to approximately 18. These 40

banks were reprivatised by 1992. 20
0
Sep-82

Sep-84

Sep-86

Sep-88

Sep-90

Sep-92

Sep-94

Sep-96

Sep-98

Sep-00

Sep-02

This stability was not long-lived, however, as a
second period of turbulence in Mexico’s financial
system occurred as recently as 1994-1996, with the major devaluation of the peso and
subsequent collapse of some banks (and direct governmental intervention in others).

This second crisis not only greatly affected the overall economy of Mexico, it also created
a crisis within Mexico’s banking sector: hyper-inflation resulted in broad defaulting of
loans, cancellations of approximately one-half of all credit cards in the country (dropping


from about 14 million credit cards to The Unbanked in the U.S.
only about 8.7 million by 2002), and
increased consumer distrust with banks
in general.
The problem of “access to banking services” and
Since these crises, Mexico has been those without such access (the “unbanked” or
“underbanked”) is an issue limited not only to
progressing through an evolution in its
rural areas of Mexico. A September 2002 study
banking system. Some key facets of this issued by the U.S. Government Accounting Office
evolution include the liberalization of (GAO) concluded that more than 55% of all U.S
bank investment and ownership adults, and more than 22% of all U.S. households
regulations (resulting partly from were “unbanked”.
Mexico’s implementation of NAFTA and
WTO agreements), as well as the In fact, surveys in some major urban U.S.
creation of a Federal deposit insurance communities have concluded that up to two-
program, and other industry thirds of individuals in households of less than
improvements. These have led to $15,000 of annual income are “unbanked”, and
often rely on alternative, non-bank services to
significant investment by multinational
pay bills or convert income checks into cash.
financial companies into Mexico’s
banking sector in recent years, The percentage of “unbanked” becomes more
especially benefiting higher income pronounced when looking at specific ethnic
consumers and larger businesses. groups (e.g.: approximately 52% of African
Americans and 50% of Hispanics are unbanked,
Major revisions to the country’s laws compared with approximately 21% of
regulating credit unions and savings Anglo/Whites ), or lower educational levels (i.e.:
cooperatives (which tend to serve lower- as educational levels increase, the proportion of
income consumers – those earning 3,000 unbanked decreases).
pesos/month or less) also occurred as
Also, some analogy of Mexico’s rural banking
recently as 2001, resulting in the system may be made to the situation of U.S.
creation of the Banco del Ahorro Indian tribes. A banking survey conducted in
Nacional y Servicios Financieros 2000 and 2001 for the U.S. Department of
(BANSEFI). BANSEFI is attempting to Treasury’s Community Development Financial
supplement the existing network of Institutions Fund (CDFI) found that more than
smaller financial institutions serving this one-third of U.S. Indian tribal lands were more
market, focusing primarily on rural areas than 30 miles from an ATM or bank branch
(note: although BANSEFI has over 500 (nearly 10%, in fact, reported that air travel was
branches, and is present in major cities, required to access an ATM or bank branch). In
addition, participants in the Native American
as well, there is to-date only one branch
Lending Study reported that serious barriers to
in Baja California Sur). banking services included tribal members’ lack of
credit history, their lack of collateral, and a gap
Taking all of the above into account, it is between Native American culture and “banking
clear that – should no major economic culture” – issues that are also very evident in
disruptions occur – Mexico’s banking rural areas of Mexico.
sector is undergoing a profound
evolution that should ultimately result in What seems clear is that, while these issues are
both greater access for the general certainly relevant in areas such as Mulegé and
public to financial services, and to Baja California Sur, the economic and social
impacts of “lack of access to banking services” is
increased stability in the sector.
still a continuing issue for the United States and
other developed countries, as well.


Banking in Mexico:
Today & Tomorrow

Bank Branches

According to the most recent data from
CONDUSEF (Mexico’s National Commission
for the Protection and Defense of
Financial Services Users [or Comisión
Nacional para la Protección y Defensa de
los Usuarios de Servicios Financieros]),
there are approximately 7,700 bank
branches throughout Mexico, 42% of which
are located in the four states of the
Federal District (D.F.), Jalisco, Mexico,
and Nuevo León.

As can be seen in the map at right, Baja
California Sur ranks low in the density of
bank branches – with the third fewest number of branches, beating only the states of
Tlaxcala and Campeche. BCS (with approximately 0.45% of the country’s population)
accounts for only 0.71% of all branch locations in Mexico and has only 0.31% of all credit
card accounts.

% Bank Branches in Mexico (2003)
The largest bank (in terms of total
branches) is BBVA Bancomer, followed by
BBVA Bancomer Banamex, BITAL(now part of HSBC),
Banamex Banorte, and Banco Azteca (a unique
Bital entity, which is discussed in more detail
Banorte later). It should be noted that Banco
Banco Azteca Serfin and Santander merged operations
Serfin in 2002, but are listed separately at left.
Scotiabank Inverlat In the State of Baja California Sur, the
Santander largest number of branches are
0% 5% 10% 15% 20% 25% represented by BBVA Bancomer (11),
Banamex (10), Banorte (9), Banco Azteca
(8), and BITAL/HSBC (7).

With Citibank’s purchase of Banamex in 2001, multinational institutions now own
approximately 90% of Mexico’s banking system. While this may be leading to what one
banking representative termed, “…a change in the moral vision of Mexico’s banks”1, by
forcing banks to reduce any additional costs (including “social” expenditures), it also is
resulting in significant investments in technology and increases in customer service.


In fact, despite the crises that Mexico’s financial sector has Do you have confidence in
undergone through the years, it is clear that there is still a Mexico's banking system?

high-degree of confidence in banks. 81% of residents in
Mulegé that were surveyed for this project stated that they No
had confidence in Mexico’s banking system, with only 16% 16%
stating “no confidence”. Similar results were also seen by Yes
Mulegé business owners that were surveyed: 74% had 81%
confidence, 16% had no confidence. Based on the frequent Some-
remarks made by those surveyed or interviewed, some of what
that confidence came directly from the fact that most of 3%

Mexico’s banks now have multinational or international
partners that are improving bank operations.

Banco Azteca: An Option for Mulegé?

In discussions with several community leaders from Mulegé, one line
of action that had been taken was, in fact, a request sent to Banco
Azteca to open a branch within the town. Banco Azteca is one of the
newest banking institutions in the country, formed only in 2001, and
offering a variety of financial and insurance services geared toward
lower- and middle-income consumers.

Banco Azteca actually now has more than 10.7% of the total number
of bank branches in Mexico, due to its unique nature as an affiliate of
the Grupo Elektra companies and their strategic placement in Elektra
retail stores throughout the country. This integrated relationship
between a retail chain and a bank not only facilitates the purchasing
of products on credit for the retailer, but also provides convenience
for consumers and an opportunity to open accounts with as little as
50 pesos.

Banco Azteca does indeed have a presence in Baja California Sur,
including four locations in the Cabo San Lucas region, three in La
Paz, and one in Ciudad Constitución. The very nature of Banco
Azteca as an integrated part of Grupo Elektra stores, however, also
limits (and perhaps excludes) the possibility of its entry into the
Mulegé market. Since none of the Grupo Elektra retail stores are located in the municipio of Mulegé,
it is unlikely that Banco Azteca will open any services there.

What is certain is that the growth of Banco Azteca underscores just how underserved most consumers
are – not just in Baja California Sur (where Banco Azteca – currently – has the second-largest number
of account holders, after BBVA-Bancomer), but also in other areas of Mexico, as well.

ATM Access

Another option discussed that could provide at least some level of service for Mulegé’s
banking needs is the possibility of installing Automated Teller Machines (ATMs) in place of
a physical branch. According to an analysis by the Bank of Mexico (Banco de Mexico), the
expansion of ATM networks in Mexico has been similar to that of other countries, with the


number of ATMs increasing during 1994-2000 at a 23% annual rate2. Despite this progress,
Mexico is still developing its ATM infrastructure. When comparing ATM access with other
countries, it appears that Mexico’s banks still underserve the general population. For
every one million persons…

! … in Mexico, there are approximately 170 ATMs;
! … in the United Kingdom, there are approximately 612 ATMs;
! … in the United States, there are approximately 1,137 ATMs.

A more detailed table with international comparisons is below:
Table 1: Country Comparison of Access to Banking Locations
Population
# Bank Branches # Bank Branches # ATMs ATMs per
Country (2001, in
millions)
(2001) per million people (2001) million people
Mexico 98.8 7,311 74.0 16,700 169.0
United States 285.0 77,806 273.0 324,000 1,136.8
Canada 31.2 14,309 458.6 35,632 1,142.1
Spain 40.3 38,729 961.0 46,990 1,166.0
United Kingdom 59.9 32,183 537.3 36,666 612.1
Japan 127.3 38,662 303.7 116,905 918.3
Venezuela 24.6 2,958 120.2 4,242 172.4
Russia 144.0 12,058 83.7 5,887 40.9
Note: For comparison purposes, it should be noted that the number of bank branches shown includes post
office-based bank branches that are used in some countries.

Given the low density of ATMs in Mexico (particularly in rural regions with little banking
access), it is important to note that some effort is being made by multilateral
organizations like the InterAmerican Development Bank to stimulate expansion of ATM
access. Much broader efforts will be necessary, however, in order to improve Mexico’s
access to banking services – perhaps in conjunction with the US-Mexico Partnership for
Prosperity or other crossborder collaborative activities. These crossborder activities
might, in fact, be of great importance to U.S. banks, as is discussed later.

In the medium term, as both Mexico’s banking culture evolves, the economy and incomes
strengthen, and workers’ remittances continue to increase from the U.S. to Mexico, the
potential demand for increasing the number of ATMs likely supports at least doubling the
number of machines from current levels.

Remittances

Remittances (or money transfers) into Mexico now make up the second largest source of
foreign income into Mexico – after petroleum, and before tourism. Approximately US$14.5
billion dollars was sent by Mexican expatriates or family members living in the United
States to communities in Mexico. For the more than one million households in Mexico that
receive these money transfers, they can make up a substantial portion of overall household
income – between 30-50% in many cases.


Although through the mid-1990s, money transfers had still remained somewhat a niche
market for U.S. financial institutions, well-known national banks such as Well Fargo,
Citibank, and Bank of America have now begun to develop financial products specifically
geared toward this activity. This includes accommodating access to U.S.-sourced
remittances via ATM access in Mexico. The trend is extending even to regional banks, such
as US Bank and Commercial Federal Bank (in Omaha), that are offering international
money transfer services for clients. Also, Mexican banks and savings institutions (such as
Santander) are beginning to recognize these funds as a potential source of future services
growth. This revolution in U.S.-Mexico banking relationships and new financial products –
including not just money transfers, but also prepaid credit card-like products and even
mortgage accounts – has been steadily growing since 2000.

Given the increasing interdependence and familial relationships across the U.S.-Mexico
border, such remittances and financial transfers (whether using debit cards, crossborder
mortgages, commercial lending, etc.) will likely continue its growth during the next
decade. Such banking relationships will not only facilitate money transfers to the 1-2% of
homes in Mulegé that currently receive such funds, but also funds related to the growing
number of U.S. retirees that are relocating to Baja California Sur.

The Demand for
Banking Services in Mulegé

Despite the challenges facing the community of Mulegé, surveys conducted of both
residents and businesses in November of 2003 clearly demonstrate a demand for banking
services – perhaps enough to accommodate a bank mini-branch, ATMs, or other forms of
serving the community. Selected survey results are below:

Not surprisingly, the vast
majority of residents in Mulegé Table 2: Type of Residents Surveyed
are full-time residents (living I live in Mulege Full Time (10-12 months/yr) 80.3%
there 10-12 months per year). A
I live in Mulege Most of the Year (6-9 months/yr) 13.1%
substantial number (13%)
reported living there only 6-9 I live in Mulege Part time (1-5 months/yr) 5.7%
months, while another 50-65 I am a Frequent Visitor to Mulege (1-3 weeks/yr) 0.0%
households are “part-time” Short Term Tourist/Other/Don't Know 0.8%
residents – living in Mulegé 1-5
months/year.


! According to the results of our
residential and business surveys, 72%
of local businesses and nearly 80% of City in Which You Bank?

households claimed to have a bank 0% 20% 40% 60% 80% 100% 120%
account in Baja California Sur.
Santa Rosalia
! The vast majority of bank users (over
93%) had accounts in the city of
Santa Rosalía – approximately 38 Loreto
miles to the north. Another 4% had
accounts in Loreto, with some of
these respondents also holding Other

accounts in Santa Rosalía, as well
(i.e.: accounts in both cities).

! English-speaking residents reported a slightly higher tendency of having a bank
account in BCS (92%, versus 77% for Spanish speakers). Interestingly, although
the majority of English-speaking residents also access services in Santa Rosalía, they
also tend to use Loreto’s banks much more frequently than Mulegé’s Spanish-
speaking residents.

! When asked: “If banking services were available in Mulegé, would you either visit
your bank more frequently or open an account?” – the results (not unexpectedly)
from community members was an overwhelming “yes”:
o 100% of residential responses were “yes” (n=118)
o 93% of business responses were “yes” (n=43)

! Residents were also asked to
estimate the frequency with Table 3: Frequency of Total Bank Trips
which they currently visiting Households Businesses
non-local banks (see table at Less than 1/month 16.5% 6.9%
right). It is clear that 1-3 times/month 39.2% 20.7%
businesses play an important Weekly 33.0% 41.4%
source of demand for banking More than 1/week 8.2% 31.0%
services, although the overall Not Applicable 3.1% 0.0%
number of residents demanding
such services is also
noteworthy.

! What is perhaps more significant than the percentile responses are estimates based
on the trip frequency results. According to the survey results, community
members make this 75+ mile trip at least 2,500-3,600 trips each month just for
banking. 93% of all trips would go to the city of Santa Rosalía. This would imply
approximately 75-110 trips each day made to Santa Rosalía from the greater
Mulegé region (including from adjacent smaller communities). In addition to
indicating the probable extent of demand for local services within Mulegé, these
trips also have a significant economic cost (discussed in the next section).


Detours to Economic Growth

The lack of effective access to banking services is not just an inconvenience; rather,
serious and significant economic and social impacts that can affect the growth of a
community can result. As noted by a recent report from the Inter-American Development
Bank, “[r]elatively underdeveloped financial markets in Latin America and the Caribbean
create bottlenecks that impede economic growth as well as the reduction of poverty in the
region.”3

This impediment to economic growth is strongly felt by the Do you believe that a lack of
banking services hurts
Mulegé community: 87% of residents and 93% of businesses Mulegés economy?
surveyed stated that they believe a lack of banking services
hurts Mulegé’s economy. In more specific terms, some of the
possible impediments to local economic growth caused by a No
12%
lack of banking services include: Yes
86%
Missed sales from local residents and tourists due to
Don't
! Know/No
lack of effective payments (cash, credit or debit cards, Opinion

traveler’s checks, etc.); 2%

! Transportation costs and lost time from traveling to
non-local banks (particularly to Santa Rosalía); and
! Missed money transfers from expatriated family members from Mulegé that may
be working in other countries, or from part-time residents.

Missed Sales

79% of the businesses in Mulegé reported having lost sales because a customer was not
carrying sufficient cash to complete a transaction. This is largely because businesses in
Mulegé run almost entirely on cash transactions, with only a handful of locations identified
as accepting credit cards, and relatively low acceptance of travelers checks (for fear of
fraud). This survey of businesses also indicated that the average amount of sales missed
annually by these companies was approximately US$750-US$2,000 per location – in some
cases, up to 50% of sales.

These “missed transactions” have a real effect on the community of Mulegé: based on the
small sample of businesses surveyed, the value of missed sales due to insufficient access
to cash likely ranges between US$170,000-US$300,000 annually. Given standard
multiplier effects, the impact may be as much as US$270,000-US$480,000 in economic
losses4.


Trips to Santa Rosalía

Currently, residents of Mulegé that desire banking services must either drive to another
community, or rely on more informal semi-banking services offered by other community
members (such as loans, check cashing, etc.). As mentioned earlier, nearly all community
members that visit their bank travel to either Banamex or Bancomer branches in Santa
Rosalía.

These trips usually also involve shopping in Santa Rosalía – so some of these trips may have
been necessary anyway. However, conservative estimates based on the survey results and
basic transportation costs imply that banking trips to Santa Rosalía or for Loreto (which
is farther) cost the community of Mulegé at least $175,000-250,000 annually (just for
gas). There are additional trip costs, as well, some of which are more difficult to quantify.
Although the cost in terms of impact on infrastructure will not be discussed here, it is
notable that the physical amount of time necessary to both travel to Santa Rosalía (or
Loreto) likely amounts to at least 90,000-170,000 hours of productive time lost annually
due to traveling for banking services.

Missed Money Transfers

Although much more difficult to quantify, the effect of remittances (money transfers) on
Mexico in terms of economic impact has been briefly discussed. In the case of
communities in Baja California Sur, it is estimated that only about 1.7%-2.0% of the
households in the State actually received remittances in 2000 (based on Census data).
However, given the difficulty with actually transferring money into rural locations such as
Mulegé, it might be expected that remittances to such communities would actually
increase should effective banking services be offered.

In addition, U.S. expatriates that are living in the Mulegé community full- or part-time may
also be more likely to increase their annual expenditures into the community, given more
convenient access to U.S.-sourced funds.

In both cases, it is difficult to estimate what economic
impact these increased money transfers might have on
the community of Mulegé. Such transfers, however,
were specifically mentioned by several residents
during interviews, especially in relation to accessing
emergency funds following natural disasters (such as
Hurricane Marty in 2003, that damaged roads to both
Loreto and Santa Rosalía).


Mulegé’s Challenges

Challenges to Banking?

The evolution of Mexico’s banking sector will take time, and there still may not be the
needed incentives for a bank branch to open immediately in Mulegé. The challenges
Mulegé has experienced in attracting a bank are, in fact, numerous:

! Distance & Cost: These two key and critical issues are intertwined when it comes
to discussing why no bank currently exists in Mulegé. According to two banking
representatives, the cost to open a branch (approximately US$400,000-600,000) is
part of the equation. Another part of the equation is the
long distance between major population centers and the
subsequent increases in a wide range of operational costs
for supporting stand-alone branches (or ATMs).

A unique and unavoidable cost for banks cited by three of
the banking representatives interviewed for this study was
the cost to physically transport money to banks in Baja
California Sur. Money and checks must be regularly
transported between either Tijuana or Culiacán. This
involves armed vehicles traveling either by road, or (in the
case of Culiacán) air shipment of cash. This cost applies to already existing banking
centers in BCS, but is more pronounced for outlying locations.

! Population: Mulegé also appears to have the size of a population base that falls
into a demand gap for many banks: it is large enough to have a reasonable demand
for banking services, but not quite large enough to definitively ensure an
appropriate return on a bank’s investment. Related to this latter point, Mulegé
also has not yet been able to attract enough tourism (or retirees) to attract
sustainable amounts of foreign currency inflows that support many BCS branches.
For instance, in Cabo San Lucas and San Jose del Cabo, between 50-60% of funds in
bank accounts are denominated in foreign currency (typically U.S. dollars).

Currently, more than two thirds of all bank branches in the State are concentrated
in the two municipios of Los Cabos and La Paz. Much of this can be attributed to
two very real facts: first, that the populations of these two municipalities are
somewhat concentrated into a relatively smaller geographic region; and, second,
that this region corresponds with much of the economic flows within the State
(especially in terms of real estate development and tourism, which attract large
amounts of dollars).


The issue of population dispersion can again be seen by comparing the number of
existing bank branches to the size of each of Baja California Sur’s five municipios.
Los Cabos has the greatest concentration of bank branches (i.e.: the lowest amount
of square kilometers/branch),
with one branch for every 165
Concentration: Square Km./Bank
square kilometers. The
municipio of Mulegé, on the 12,000

Sq. Kilometer/Branch
other hand has nearly one branch 10,000
for every 11,000 square
8,000
kilometers of territory.
6,000
Looked at another way, the 4,000
concentration of bank branches
2,000
in the municipio of Los Cabos
means that there is 0
Mulegé Comondú Loreto La Paz Los Cabos
approximately one branch for
every 5,000 residents of that
area, and only one branch for every 15,000 residents of the municipio of Mulegé5.
The issue of population dispersion is – and will continue to be – a major challenge
for siting a bank branch in Mulegé.

! An Issue of “Power”?: Consideration was also given to the stated concern that
perhaps – for political or business reasons – there was some influence preventing a
bank from opening in Mulegé. In particular, a few individuals expressed the benefit
that accrues to Santa Rosalía’s economy by not having a bank in Mulegé. While this
is true to some extent (discussed later), to quote one of the banking directors
interviewed for this report: “Holding back a bank from a potential market can only
be a temporary thing – not even the Governor can say ‘no’ when there’s demand.”

! First Mover Advantage: With the economic fluctuations that occur in some areas
of Baja California Sur, and with the fierce competition that exists between Mexico’s
banks, only one or a few banks will have the ability to profitably survive in a
smaller market. Using the example of Todos Santos, when a town is already
dominated by one bank branch, it becomes nearly impossible for other banks to
enter the market and secure new customers. Such a situation will likely exist in
Mulegé: the first bank to open a branch, will likely dominate the market for years
to come, presenting a challenge to creating a competitive marketplace.

Mulegé’s Larger Challenges

Although the focus of this study was originally intended to be solely related to the demand
for banking services within the community of Mulegé, there are potentially larger
challenges in both its current economic system and its future development. As one
community leader put it: “The lack of a bank is only a symptom. There are other, more
profound problems.”

Some of the most critical challenges mentioned by community leaders include:


! Jobs: “If there is cariño [care] or interest in the future prosperity of Mulegé, we
need a way to create sources of employment.” So commented one long-time
community leader, adding that creating jobs will also result in attracting a bank.
Nearly two-thirds of Mulegé’s 1,400 workers are employed in commercial and/or
service enterprises (nearly all with less than 5-10 employees). Another 250 or so
workers are employed in industry-related jobs, and another 225 in
agriculture/fishing activities.
One thing is clear: job creation in Mulegé and other rural areas of Baja California
Sur suffers from some of the same structural challenges faced by attracting a bank:
distance between population centers,
increased costs of doing business, and BCS Maquiladora Employment
poor infrastructure. Nor can BCS achieve (Jan. '99-Feb. '03)
the industrial development and 3,000
employment creation strategies of 2,500
neighboring states like Baja California or 2,000
Sonora, which have focused on 1,500
maquiladora or crossborder
1,000
manufacturing. The State’s inability to
500
retain maquiladora businesses is
demonstrated by the steady decline of 0

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03
such businesses since late-2000, as seen
in the graph at right.
! Financing: Little or no local control
exists to create local sources of funding, or to direct how government funds may
be allocated. This challenge (faced by most local communities in Mexico) stems
from the fact that most governmental funds are derived either at the Federal or the
State level, and must pass through several layers of decision-makers (including at
the municipal-level) before they can reach towns like Mulegé. Given that Santa
Rosalía is the seat of Mulegé’s municipal-level government, some doubts were
expressed that funds to support necessary infrastructure development or planning
would ever arrive in the town of Mulegé.
! Little or no planning for Mulegé’s development has taken place, nor does a
community plan of any kind exist. This is especially critical now, as new and
potentially significant development projects may occur on neighboring ejiditario
lands. To date, no mechanism exists to integrate the expected development of
these farming cooperative lands into the larger context of the Mulegé community;
and, in some cases where development has moved forward, poor uses (such as
sewage ponds adjacent to beach areas) have resulted.

In fact, considering the potential
importance of tourism to the
community’s future, there are some
notable gaps between the existing uses
on some properties in Mulegé, and the
image needed to attract tourists and/or
investors to the town.


Conclusion

While no bank currently exists in the town of Mulegé, Baja California Sur, it appears that
the expansion of banking services to the town is inevitable – albeit perhaps the timing may
be years rather than months. The existing demand from residents, businesses, and visitors
in the community, as well as changes in both Mexico’s banking institutions and the way in
which “banking services” are conducted (relying more on electronic and/or online
transactions) indicates strong prospects for the expansion of some form of financial
services into Mulegé.

As noted, Mulegé represents only one such community throughout many other areas of Baja
California Sur and Mexico, more generally, that are experiencing this insufficient access to
funds. As Mulegé advances in this area, it presents an opportunity to assess how the
entrance of such services to a community can affect its future economic growth. Perhaps
lessons can be learned from the example of Mulegé to benefit other small communities
that also have such incredible potential.

Mulegé’s potential future growth, however, is tempered by deeper issues – areas of need
that may be part of the underlying reasons why no bank operates in the community. Some
of these issues are: stability in the town’s economic future (given the need for job
creation), a vision for the community’s development (especially considering the lack of
integrated regional planning), and little control over governmental expenditures for the
community. Whether or not these issues can successfully be addressed must be the focus
of future activities, and potentially the development of a strong civic culture and civic
activism from the community itself.

What is clear as the waters of the Sea of Cortéz: despite insufficient funds and in some
ways being, as one banker put it, “an island”, Mulegé and many other communities within
the State of Baja California Sur are approaching a point of transition. The direction of that
transition is the question that remains.


Appendices & Special Thanks

Appendix 1: Selected Residential Survey Results
In late-November, 2003, CBA implemented a small survey of residents located in the main
town of Mulegé, and in communities within several miles of the town center. During CBA’s
short visit to the region, we were able to conduct a bilingual (Spanish & English) survey of
slightly more than 120 individuals. Approximately eight general locations were selected in
order to provide a somewhat representative balance of full- and part-time residents, and
every attempt was made to keep the sampling random. Our resulting sample size was
smaller than preferred, but acceptable: 122 participants resulting in a confidence level of
95% +/- 8.5%.

Table Res-1: Crosstab of Resident Type & Language
Which of these statements best describes you (as a resident of Mulegé):

Short Term/
Full Time Most of theYear Part time Frequent Visitor
Other/Don't
(10-12 mo./yr) (6-9 mo./yr) (1-5 mo./yr) (1-3 wks/yr)
Know
80.3% 13.1% 5.7% 0.0% 0.8%
Language
Spanish 95.8% 4.2%
English 25.9% 59.3% 11.1% 3.7%

Table Res-2: Crosstab of Bank Acct Status & Language
Do you or someone in your household have a bank
account in BCS?

Yes No
81.1% 18.9%
Language
Spanish 77.9% 22.1%
English 92.6% 7.4%

Table Res-3: Crosstab of Bank Acct Status & Resident Type
Do you or someone in your household have a bank
Yes No
account in BCS?
81.1% 18.9%
Which of these statements best describes you:
I live in Mulegé Full Time (10-12 months/yr) 81.6% 18.4%
I live in Mulegé Most of theYear (6-9 months/yr) 93.8% 6.2%
I live in Mulegé Part time (1-5 months/yr) 57.1% 42.9%
I am a Frequent Visitor to Mulegé (1-3 weeks/yr) 0.0% 0.0%
Short Term Tourist/Other/Don't Know 0.0% 100.0%


Table Res-4: Crosstab of Bank Acct Status & Resident Type
Less 1-3 More
How frequently do you currently need to visit Not
than times/ Weekly than
your bank in BCS? Applicable
1/month mo. 1/week
16.5% 39.2% 33.0% 8.2% 3.1%
Which of these statements best describes you:
I live in Mulegé Full Time (10-12 months/yr) 20.8% 36.4% 29.9% 10.4% 2.6%
I live in Mulegé Most of theYear (6-9 months/yr) 53.3% 46.7%
I live in Mulegé Part time (1-5 months/yr) 50.0% 50.0%
I am a Frequent Visitor to Mulegé (1-3 weeks/yr)
Short Term Tourist/Other/Don't Know 100.0%


Special Thanks
Although the total number of people that contributed to this report are too numerous to
mention by name, Crossborder Business Associates (CBA) would like to note the following
individuals that played a key role in the development of this study:

Residents of Mulegé
CBA’s research in the town of Mulegé relied on the personal time and interest of many individuals to
support the goals of this project – including the residents and business owners that participated in
the project’s survey. However, a special note of thanks is given to the following individuals:

! Alfonso and Adrian Cuesta
! Leon Nolet
! Miguel Angel Quintana
! Alvaro Padilla
! Saul Davis
! Don Johnson
! Francisco Javier Marron Rodriguez
! Melitón Enciso Rodriguez

Survey work was facilitated by the very kind Maestra Dolores Cuesta Mesa,
who arranged for three very dedicated and hard-working high school
student assistants: Salvador Higuera Camacho, Elvia Sanchez Pasillas, and
Adiel Gorosave Cota (pictured above and at right).

A note of thanks also to Mrs. Judy Tussy, who provided several useful recommendations at the
beginning of the project. Mrs. Tussy is one of several promoters in the town for the Mulegé Student
Scholarship Program – a non-profit group that supports basic needs for students in Mulegé (for more
information, please visit www.bajaquest.com/msspi/ ).

Banking Representatives
The following individuals generously gave their time, and provided special insight into Baja
California Sur’s banking system:

! Roberto Miranda Caperon, Sub-Director Regional Zona, Banorte
! Joel Guerrero, Gerente, Scotiabank Inverlat
! Jorge Alberto Aguilar Siono, Sub-Director, BITAL
! Víctor Manuel Corral Valdez, Titular de Plaza BCS, Banamex

Research Assistance
Although CBA’s Director (Kenn Morris) conducted the majority of research and analysis for this
project, important background research assistance and advice was provided by the very gracious
Doctora Antonina Ivanova Boncheva, Professor in the Department of Economics from the Universidad
Autónoma de Baja California Sur (UABCS); and CBA’s Market Research Assistants Vereniz Lavenant
and Yuen Yee Lepe Ley.


About Crossborder Business Associates
Crossborder Business Associates is a San Diego-based crossborder market
research, strategic consulting, and policy analysis firm dedicated to helping
businesses, governments, and organizations explore opportunities and issues
across and along the US-Mexico border. For more information, please see
CBA’s website at www.crossborderbusiness.com .

About the International Community Foundation (ICF)
ICF is a non-profit public charity formed in 1990 to foster lasting philanthropy to benefit under-
served communities throughout the Americas and Asia. With over 70% of ICF’s recent grantmaking
benefiting charitable causes along the Baja California peninsula, ICF is assists donors from the
United States and abroad with charitable giving needs from Tijuana to Los Cabos. For more
information, please visit ICF’s website at www.icfdn.org .

1
Confidential interview with La Paz-based banking director, 11/17/2003. Banking representatives
interviewed for this project included La Paz, BCS, banking directors and managers from Banamex,
Banco Azteca, Banorte, BITAL, and Scotiabank between 11/16 and 11/18 of 2003.
2
Evolución Y Estructura De Los Medios De Pago Distintos Al Efectivo En México, Eduardo Jallath &
José Luis Negrín, Banco de Mexico (August, 2001: p. 10).
3
“Financial Market Development: Support from the IADB Group 1990-2002”, Inter-American
Development Bank (February 2003, p.3)
4
Because of the small sample size involved with the survey, CBA recommends additional research
to increase this estimate’s accuracy.
5
Based on INEGI 2000 Census data and 2003 data from CNBV.


2004 - Insufficient Funds: The Demand for Banking Services in Mulegé, Baja California Sur, & Opportunities for Community Development

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2004 - Insufficient Funds: The Demand for Banking Services in Mulegé, Baja California Sur, & Opportunities for Community Development