Poverty, Entrepreneurs and Financial Markets in the Rural Areas of Mexico

Improving the performance of rural financial markets in terms of increasing access to financial services is often seen as an important tool in attacking rural poverty, partly because rural financial markets may help rural entrepreneurs deal with transitory income shocks, and partly because profitable projects exist that could raise income. The purpose of this chapter is to analyze empirically if and how the performance of rural financial markets affects the levels of poverty and the distribution of income among rural entrepreneurs in Mexico. As in other countries, the poor performance of Mexican rural financial markets is based on three factors. First, the large majority of disadvantaged rural entrepreneurs operate their businesses in financial autarky. Second, when they do have access to rural financial markets, rural entrepreneurs receive credit only under very negative conditions. Third, a low per centage of rural entrepreneurs place their savings in financial instruments. These factors induce rural entrepreneurs to choose low-risk and low-return investment strategies that in the long run are likely to widen the income distribution gap and to maintain poverty levels.