The Mexican Private Credit Paradox: High Yields in an Underbanked Economy

The global surge in private credit has found a particularly compelling catalyst in Mexico. Unlike in developed markets where private debt often supplements traditional bank lending, in Mexico, it is a necessary structural solution. The country’s Small and Medium-sized Enterprises (SMEs), the true engine of the national economy, are chronically under-financed by traditional banks, creating an attractive landscape for alternative lenders seeking strong, risk-adjusted returns.

At Clockwork, we see this as a classic “leverage paradox”: Mexico’s most vital economic segment is starved of credit, leading to punitive, high-rate financing from alternative sources. This inefficiency forms the core of a significant investment opportunity.

The Underserved Core of the Economy

SMEs are the undisputed economic backbone of Mexico, yet they face enormous hurdles in accessing capital.

The traditional banking sector, concentrated among a few large institutions, prefers low-risk, high-margin lending to large corporations and consumer credit, deeming SMEs too high-risk or high-effort.

The Opportunity: Attractive Rates and Returns

This structural failure by traditional banks forces the majority of Mexican SMEs to seek alternative, and often expensive, financing.

• Reliance on Informal Financing: Over 80% of Mexican SMEs rely on supplier financing (accounts payable) as their primary source of credit.
• High-Rate Environment: Alternative lenders, including fintechs and factoring firms, step into this gap and charge monthly interest rates of 2.5% or more, plus commissions. This translates to a total annual cost that frequently ranges from 40% to over 70% for the necessary “privilege” of fast liquidity. While this is a high cost for the borrower, it creates a unique spread opportunity for private credit investors.
• Risk-Adjusted Returns: These high rates are driven by a lack of alternative options for credit-starved businesses, rather than solely the risk profile of the borrower. By employing specialized underwriting models that use alternative data (like utility payments and transaction records) instead of a limited formal credit history, private lenders can more accurately assess creditworthiness and capture a substantial premium over traditional credit instruments.

The Path Forward for Private Credit

The environment is signaling a sustained opportunity for private credit in Mexico. Global private credit AUM topped US$1.5 trillion in early 2024 and is expected to double to US$2.8 trillion by 2028, a trend fueled globally by banks pulling back from middle-market lending.

In Mexico, this trend is amplified by a clear governmental push toward financial inclusion for the SME segment. The new administration has committed to boosting credit access for SMEs, with an end goal of 30% of all Mexican SMEs having access to financing by 2030.

By providing flexible, timely financing, private credit funds are not just filling a gap; they are serving as a necessary replacement for a non-functional system. For investors, the combination of high yield and structural market inefficiency translates to a compelling investment thesis: access to a core economic segment at superior risk-adjusted returns.

The success of new financial models that prioritize technology and efficient underwriting will be key to unlocking the full potential of this market, allowing Mexico’s economic engine to finally gain the financing it deserves.