Mexican Entrepreneurship Must be Leveraged

Interview with Ana Barbara Mungaray

By Ariel Ruiz Mondragón / Photo: Ignacio Galar

Mexican Entrepreneurship Must be Leveraged
Micro, small and medium-sized enterprises (MSMEs) occupy in Mexico essential economic and social spaces. The wellbeing of the country and the prosperity of its inhabitants are linked —to a large extent— to the performance and projection of this type of economic units. Ana Barbara Mungaray, Head of the Productive Development Unit (UDP) of the Secretariat of Economy (SE), shares in this interview with Comercio Exterior the vision and programs promoted by the current federal administration for the growth of this segment of the business fabric. “Precise shots” in terms of size, sector, region and production vocation.

What is the importance of micro and small businesses in the country’s current situation? What are the main strengths and weaknesses?
MSMEs are very important because in number of establishments, they make up 99% of the country’s business fabric. It greatly contributes to employment, almost 75%. It also generates over one third of national production. If we look at it this way, this sector is of enormous relevance for the national economy, and also with enormous potential for the reactivation of the economy in the long term.

Their strengths include: they are an important employment generator, they are in all sectors, and they have a very important growth perspective. MSMEs can be the engine of productivity growth in the country, if we support them to incorporate the best business practices.

One of their weaknesses is that only 15% of these companies have training and ongoing improvement processes. Some of them are born from productive vocation, but in general they obey processes of self-employment or family tradition preservation. Although their founders are entrepreneurs, many of them do not see themselves as such. There is a very big training and support challenge there: to give them the necessary tools to clearly identify the logic behind their business and the variables that affect them, as well as how they can grow.

Another big challenge is that nowadays only 26% of msmes accept a bank loan if offered to them, even when they face a financing need. An additional challenge is that when they manage to get some type of loan, many companies usually use it to solve short-term problems: buy supplies, pay other loans or payroll. The investment that broadens their business horizons is rather scarce.

Does the country have a favorable ecosystem for these types of establishments to expand?
These companies already exist, but we need them to become stronger and spread throughout the country and past its borders. That’s the reality of it. What we need is to improve their ability to access financing, training, technical assistance and certifications, and provide them with the necessary tools to grow and multiply. Often, when we talk about companies and their contribution to the economy, we think mostly of the largest companies, those that actively participate in large global trade flows. These types of companies are certainly essential for any open economy, but in the case of Mexico, they represent less than 1% of all companies in the country, and tend to concentrate their activity in very limited areas of the national territory. MSME's, on the other hand, are literally in every corner of the country; they are the backbone of millions of people and families, and represent the most important route for the constant circulation of goods and services. That’s why public policy has an obligation to keep them at the center of their focus.

Is there room for the state to participate in the building and consolidating of a fertile ecosystem for the development of this type of productive units?
In the case of MSME's, the state’s role is essential. It needs to be there because the country is very unequal and we need to have compensating processes that help these types of economic units to survive. Building a conducive ecosystem so they can become professional, innovate and grow. Hence, industrial policy is important, and MSME's occupy a predominant place in the government agenda.

We must have size specific policies namely, programs for micro companies, programs for small companies, and others for medium-sized enterprises. There are important differences in the sector realm that must also be addressed: a small technology-based company is not the same as a social-based company or a small diner.

From an industrial policy standpoint, we must also think about what the most important sectors are, those with the greatest potential to contribute to inclusive growth for the country, and how we can stimulate those whose demand has a more promising horizon.

Regional disparities constitute another relevant area for the design of public policies. Industrial policy and state participation definitely have a key role in promoting balanced regional development.

What place do micro and small companies have in the current federal administration’s strategy?
MSME's occupy one of the most important places in our current strategy. Social-based micro enterprises that are at the base of the business pyramid have a strategic project: Tandas (group savings pool) for Wellbeing, a program focused on the attention of these small establishments, a kind of no-guarantor loan. Then there is a staggered support strategy, with loans and another series of programs to boost companies that are a slightly bigger and more formal.

ANA BARBARA MUNGARAY

Is this a strategy with different schemes depending on the size of companies?
Yes, we contemplate three basic tools: financing, training, and technical assistance. As part of support efforts, the National Entrepreneur Fund has an open call for companies seeking support for training, technical assistance, and certification. For us at the Secretariat of Economy, financing, training, and technical assistance are resources that complement each other. Financing can be a double-edged sword when there is a lack of knowledge to use it correctly; being in debt is the classic example of how financing without information and unaccompanied can end up deeply compromising the viability of any company. Similarly, we want MSME's in the country to have access to key business skills for sustainability and growth; for the smaller companies, it is essential to know costs, prices, inventory, to name just a few. For the larger companies, especially those that have a growth potential that can lead them to supply new markets nationally and internationally, access to technical assistance, ongoing improvement and certifications can make all the difference.

In the case of financing, we have different schemes. One is "Microloans or Tandas for Wellbeing," aimed at smaller companies, as I previously mentioned. At the Productive Development Unit, we work with loans for formal micro enterprises that are still very small, ranging from 200 thousand to 50 thousand pesos. It is a pilot program we are developing in coordination with the Banco del Bienestar, for companies to capitalize in the short term and strengthen their operation and growth potential.

Then, we work with Nacional Financiera and the Foreign Trade Bank in security programs. This is, the Secretariat of Economy, development banking and commercial banking joining forces to offer, especially to small and medium-sized enterprises, credit products that respond to their specific financing conditions and needs.

We are trying to get commercial banks to offer these companies loans from 300 thousand to up to 10 million pesos. I would like to highlight here two very important products: a recently launched credit product for women entrepreneurs, up to 300 thousand pesos with a very appealing interest rate; and another product also for women, for up to 5 million pesos, for companies that can export or are planning to market their products through large-scale online platforms. There is another very similar product for young entrepreneurs.

What we want is for banks to have credit options for the different sizes and productive vocations of companies, and with a vision of equality that promotes and strengthens the participation of women in the economic-business life of our country.

What about Pronafim? What’s new there?
Pronafim is still working for smaller companies and, together with the National Entrepreneur Fund, is a central element of our strategy to address these companies. One very important thing is that in both programs, as in the entire federal government, we are focusing on operating in innovative ways that allow us to directly reach beneficiaries, completely eliminating any intermediaries, democratizing the distribution of resources, so that these get to those that most need it, and operating based on rigorous technical analyses and with total transparency and accountability.

What participation do women have in these?
Women occupy a central place in our actions. At Pronafim, for example, of the 170 thousand loans given out in a two-month period, 160 thousand were for women. The number of women who benefit from the program is very high and, since the resources come from the Rural Women Microfinance Fund, the vast majority of these supports are for rural women.

SE’s commitment with women involves working on strategic alliances, for example, with the National Institute of Women. Historically, women are precisely the most reliable and are one-half of the entire population, which has enormous productive potential with which to contribute to our society. Many of them know, from different contexts and social conditions, that a loan can be a one-of-a-kind opportunity to have a productive activity that allows them not only to feed their children, but also to live with them, since most of these small businesses operate inside homes. We are betting on women, but we are also aware that we cannot put on their shoulders —from a public policy standpoint— two or three burdens on top of household tasks, which are traditionally assigned to them by the sexual division of work that predominates in our societies. In partnership with different social actors, including entities of different levels of government, we are looking for creative formulae to strengthen the economic empowerment of women from very different social environments—without this increasingly impoverishing them all, particularly those in more vulnerable situations.

Is the informal sector an obstacle to provide financing to small and micro enterprises?
In our country, the informal sector is a space where many micro enterprises are born; it is almost a natural step, because it is learning territory. Informality is at the same time one of our biggest challenges but we see it in a positive way, without stigmatizing the sector. Also, we are working proactively to create —with new programs— a structure of incentives for informal micro enterprises to become formal.

The opportunity of getting a micro loan is part of said incentives. There are many productive units that are self-employed, but most have an entrepreneurial vocation, although they do not consciously realize it, or although many people do not see it that way. The fact that they are in the market means they already have something to offer. Stemming from this —with a clear and defined strategy of support and financing— we can leverage the entrepreneurship we Mexicans

Many people say there is no innovation in those companies, but their daily efforts to stay in the market shows their entrepreneurial character and spirit. Of course there is potential for growth and innovation there.

What can be done to support the professionalization of this type of economic unit?
That’s very important, and I think that’s where our main focus lies as a secretariat. We thus created the Business Capacity Developer Census (Padce), which is one of the most innovative elements of the current administration’s public policy.

The president gave us the great challenge of reaching entrepreneurs and beneficiaries of government programs directly. We thus ask ourselves: if we are going to provide direct support to companies, how are we going to ensure that they are going to hire the right training and that they are not going to be victims of improvisation or illegal intermediaries?

What we did was issue a call to organizations, higher education institutions and companies to join the Padce. And we established quality standards to accredit the capacity of companies that offer training and support services. We are already in the final phase of the certification process; we received 257 requests from potential business capacity developers across the country, which was much more than expected.

We want to professionalize business training and encourage competition among trainers so that they provide a better service to small and micro enterprises. We are trying to generate an incentive structure that makes the training market more transparent and efficient.

With the call to the National Entrepreneur Fund we seek formal companies that want to grow and require training and technical assistance. There is a time when there is a match between the company that is seeking the training and the provider that supplies it. With this comprehensive strategy, companies not only receive the resources for the direct contracting of services, but also have a reliable list of suppliers, among which they can select the one that best suits their requirements. For this list of suppliers, we were inspired in the National Register of Quality Postgraduate Programs. Later, with the evaluation of the first group of trainers, we want to have a ranking, so that trainers create a reputation history that distinguishes those that provide better assistance and training.

Our idea is exactly that of professionalizing companies, and for that we have found very good trainers, but also others that could still achieve substantial improvements in their own capabilities.

How do you incorporate small companies to the virtuous dynamics of technological development and innovation?
We talk about the highest steps in the chain when certain companies excel after training. We are working on the identification of these potential value chains, those that allow us to enter a wider universe of companies.

We then have the certification processes. What we are now subsidizing with the National Entrepreneur Fund are precisely the certifications to companies that already have a potential buyer. For example, a small software company belonging to kids straight out of university that, with a certification, can be integrated into the supplier portfolio of a larger company. If the company confirms its interest in hiring the supplier and we verify the usefulness of the certification, the fund subsidizes part of the process. This opens a path for companies to join value chains. It changes their perspective because these certifications may require an investment of half a million pesos in the short term, which without this program could be too expensive or frankly out of reach for them.

And in terms of foreign trade, what can be done to incorporate more companies?
There are certifications for local and national value, and other pertaining international companies. The SE’s Global Economic Intelligence Unit selects —country by country— the sectors that are most dynamic and with more business opportunities. Then, in Mexico, companies that can meet this potential export demand are found. The idea is that after identifying them —through a policy of support and technical assistance— we continue with precision shots and promote the incorporation of more companies to export markets.