Mexico City Drops Interest to 0% on All Fondeso Small-Business Loans

Mexico City Mayor Clara Brugada said Thursday that every loan from the Social Development Fund (Fondeso), the city agency that lends to small businesses, will now carry 0% interest. Until now some Fondeso loans charged 3% a year. Borrowers will only have to repay the amount they received.

Brugada gave the order to Fondeso director Daniela Cordero Arenas at an event in the Fray Nano baseball stadium in the Venustiano Carranza borough, where the city handed out credits and grants worth 140 million pesos, according to Crónica. El Universal and Crónica reported that close to five thousand entrepreneurs and small businesses received support.

What it means for borrowers

Fondeso lends to people who have trouble getting a bank loan. Cordero said the fund serves young people, women and older adults, does not check applicants with the credit bureau and does not ask for proof of income. Training and follow-up come with the money.

With interest gone, the cost of a Fondeso loan is the principal alone. Brugada said borrowers who pay on time can apply again and move up step by step to larger loans, up to 100 thousand pesos. “Lo único que les pedimos es que devuelvan ese recurso,” she said, asking recipients to pay the money back so the city can lend it to more people.

The two programs behind Thursday’s handout

• Xitopehua: loans of 30 thousand to 100 thousand pesos for businesses that are already running. These are repaid.
• Capital Semilla Ikal: seed money for people starting a business. The city gave out 883 grants of 25 thousand pesos each, and they do not have to be paid back.

Brugada defended the grants by saying someone opening a business should not start out in debt. She contrasted the program with Fobaproa, the bank rescue of earlier decades, which she described as public money that helped bankers and big business owners while small merchants stayed shut out of credit.

How Fondeso rates have fallen

Cordero said that under Claudia Sheinbaum’s city government the rate on Fondeso loans dropped from 26 to six percent a year, fixed, and an interest-free option was created, though it was capped at 10 thousand pesos. When the current administration started, the six percent loans were cut to three percent and the Ikal seed program was added. Thursday’s order removes interest altogether.

Brugada said that in the first two years of her term the city has issued 33 thousand loans, and 72 thousand people have taken business training.

New institute and a credit line for students

Brugada also announced the Mexico City Entrepreneurship Institute (Instituto del Emprendimiento de la Ciudad de México), which Crónica reported will be created in the coming days to train and advise people building businesses. She asked Fondeso to expand a credit line for young people, especially students who cannot borrow because they have no credit history. The mayor said she wants young founders to work on robotics, artificial intelligence, clean energy and technology that solves city problems.

She proposed a separate program for people working in the informal economy, to help them register their businesses, hire staff and get social security. Her administration is also working on a Banco de la Ciudad de México, a city bank she said would focus on local economic development.

What to watch

No start date has been announced for the 0% rate on existing loans or rules for the youth credit line. Details on the institute and the city bank are still to come.

Sources: El Universal, Crónica