Financial Licenses

Brand new opportunity in Latin America: a license to bank without a bank with a Mexican SOFOM

7/12/2023 8:00:00 AM
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At Mundo, we understand the fundamental role financial freedom plays in shaping the prosperity of international investors. For us, this concept transcends conventional limits and continually paves the way for fresh opportunities to unlock the immense potential of global wealth. In line with our commitment to discovering innovative financial products, we’ve decided to explore the Mayan lands. Many entrepreneurs from different corners of the world look for banking options in Latin America, so why not give them innovative solutions? Today we present a concept that is revolutionizing banking in Mexico and the wider region: the Mexican SOFOM. In this journey to redefine banking in Latin America, we invite you to explore the potential of SOFOMs and how you could leverage them to build a stronger financial portfolio.

What is a Mexican SOFOM?

A SOFOM, or Sociedad Financiera de Objeto Múltiple, in Spanish, is a type of financial institution native to Mexico. These organizations offer credit services and financial advice to their clients, allowing them to bypass traditional banking methods. A Mexican SOFOM, in particular, provides a unique and alternative approach to banking in Mexico and Latin America.

SOFOMs have two classifications: regulated (ER) and unregulated (ENR). The former is subject to the scrutiny and regulation of the Mexican banking authorities, while the latter, despite being less regulated, must comply with certain norms and provide information to the authorities. To open a SOFOM, investors must align with the stipulated requirements, which generally encompass a solid financial base and a deep understanding of the Latin American financial ecosystem.

How the SOFOMs are changing the financial landscape in Mexico

In recent years, SOFOMs have been instrumental in reimagining the financial sector in Mexico. In 2006, a group of leaders in the sector created the ASOFOM, which today is the largest association of non-banking financial institutions in the world.

They’ve been working untiringly to consolidate the non-banking financial institution sector and to integrate the best of two worlds. Thus, they bring more inclusion possibilities to those now outside the scope of traditional banking. In 2020, the Semana Digital event was quite a success and showcased the potential of SOFOMs in the digital era. This conference brought together key players in the financial industry and highlighted the impact of SOFOMs on financial inclusion, sustainability, and the digital transformation of banking in Latin America.

SOFOMs are pioneering a wave of alternative banking in Mexico by addressing the credit needs of underserved populations, providing tailor-made solutions, and fostering a sense of financial inclusivity. Their versatility and adaptability have seen them thrive even amidst the turbulence of the global economy, making them an attractive banking option in Latin America.

Comparing Latin American banks with SOFOMs presents an interesting insight. While traditional banks offer a broad range of services and have a more significant presence, SOFOMs, on the other hand, provide personalized and flexible solutions, agility in their services, and innovative financial products.

The Structure of a SOFOM

Understanding how a SOFOM is structured is essential in comprehending its functions and operations, especially if you’re interested in the subject and want to open a SOFOM institution in Mexico. Thus, a typical SOFOM is composed of four key components, each playing a critical role in its operation:

Equity Holders

These are either individual investors or corporate entities who possess equity shares in the SOFOM. Their role is pivotal as they furnish the necessary capital that fuels the SOFOM's functions. They also wield the authority to designate individuals for the Board of Directors.

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Board of Directors

This body constitutes the backbone of the SOFOM's strategic decision-making process. The members of the board, appointed by the equity holders, are tasked with shaping the organization's strategy and supervising its administration. Their accountability lies directly with the equity holders.

Operational Management

At the helm of the operational management team stands either a CEO or a General Manager, whose responsibility is to ensure the smooth running of the SOFOM's everyday affairs. They oversee critical areas such as originating loans, managing risks, and maintaining adherence to regulatory norms.

Advisory Committees

These groups offer expert advice and assistance to the operational management team on specific facets like credit allocation, risk containment, and regulatory compliance. Their role is crucial in affirming that the SOFOM stays within the defined policies and procedures, thereby ensuring its efficient and compliant operation.

Pros and cons of banking in Latin America

The reader may be wondering how many of his/her clients might choose banking in Latin America (or banking in Mexico) over other options. Comparing Latin American banks with institutions in Switzerland, the US, or Hong Kong is beyond the scope of this article. You can read about these topics in our banking section

Either way, Latin America presents a huge market whose banking sector is dynamic and growing. However, there are also challenges such as regulatory instability, socioeconomic volatility, and limited financial inclusion in some areas.

With SOFOMs, many of these challenges are being addressed. They offer financial services tailored to meet the unique needs of individual clients or sectors. Furthermore, their commitment to digital transformation is propelling financial inclusion and creating an alternative banking system.

But just like any other financial institution, SOFOMs also have their downsides. For instance, the ENR SOFOMs are less regulated, which might carry potential risks for the unacquainted investor. 

Disclaimer: Every financial move has its risks, so make sure to consult with an expert before making any important financial decisions. This article provides general information about SOFOMs but doesn’t replace professional financial advice. 

Offer innovative banking options in Latin America and grow your business 

In conclusion, the emergence of the Mexican SOFOM presents a brand-new opportunity to revolutionize banking in Latin America. As a financial institution offering bespoke financial services, SOFOMs provide an exciting alternative to traditional banking, especially for those looking to navigate the dynamic Latin American financial landscape. If this is an area that you’d like to explore and conquer, please get in touch with our experts for detailed information. 

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