Aplication of Porters Forces Model in Microfinance

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Universidad Panamericana|
APLICATION OF PORTER’S FIVE FORCES MODEL IN THE MICROFINANCE INDUSTRY OF MEXICO| A strategic analysis of industry|
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By Carlos Enrique Avelar González | 28/05/2010|

Strategic Planning
Management and finance
School of Economics and Business
Universidad Panamericana

CONTENTS

1. Background3

2. Problem definition3

3. Research method4

4. Scope of the study5

5. Limitations of the study5

6. Possible errors6

7. Theoretical framework 7

8. Results8

9. Conclusion17

10. Bibliography18

BACKGROUND
Given the widening gap of economic inequality in Mexico, microfinance has emerged as an effective alternative for fighting poverty and promoting economic development of poor and marginalized families. The favorable results of this tool in developing countries in recent decades have resulted in the creation of a high number of new institutions focused on meeting the financial needs of disadvantaged social sectors (Navajas & Tejerina, 2006). Given the great expansion of microfinance in Latin America and in Mexico, a large number of entrepreneurs and investors have begun to see the sector as a new and profitable business opportunity, even though barely a few years ago microfinance were primarily considered a task for nonprofit associations. The term microfinance can be understood as the provision of financial services for people who lack access to traditional commercial banking; users of these services are mostly poor people or people with low incomes. In this context, microfinance aim to make available all financial services offered by a bank to people with low financial resources. According to the Asian Development Bank microfinance can be defined as ‘the provision of a broad range of financial services Such as deposits, loans, payment services, money transfers, and insurance to poor and low-Income Households and, their Microenterprises’ (2000:p.2). PROBLEM DEFINITION

Mexico has witnessed the unprecedented development of microfinance in the last decades, and despite the large increase in the number of microfinance institutions in the country, there isn’t a systematic study about the level and intensity of competition in the sector and even less on how attractive is the sector to new investors (Microfinance Information Exchange, 2008). Large MFIs (Microfinance Institutions), as COMPARTAMOS bank and financiera independence, have achieved levels of profitability and growth that have led to academic debate, COMPARTAMOS bank has managed to become one of the most profitable banks in the country by lending money to the Mexico’s poor (Malkin, 2008). The rapid growth and high profitability of COMPARTAMOS bank has provoked a debate about how attractive can be lending money to the poor (regardless of the moral implications that might have). There is a growing faction that believes that the microfinance sector in Mexico could be highly lucrative for the coming decades, on the other hand there is a faction that thinks that microfinance won’t offer sufficiently attractive returns, either because they think that lending money to the poor is too risky (you may incur large losses) or because they think that there are many competitors in the market.

This study seeks to provide a competitive landscape of the microfinance sector in Mexico. This research seeks to answer the following questions: * The sector really offers a competitive environment sufficiently attractive to new investors? * The sector has the necessary conditions for the consolidation of large financial institutions? * The sector has the necessary conditions to provide an attractive level of profitability consistently over the next decades?

RESEARCH METHOD
This section of the report provides a description of the research method used in this...
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