CHAPTER

7

A year prior to my arrival, Ricardo had hired Goldman Sachs to oversee Elektra’s listing on the NYSE, but every time they negotiated a price per share, Goldman Sachs would come back a few days later saying that they were worth even less. They initially started off by agreeing to sell the stock for $27 per share but then got cold feet and renegotiated it at $25. Ricardo agreed to $25 even though it was lower than he would have liked, but then the day before the company went public, Goldman said that they only felt they would be able to sell the shares for $23 each, devaluing the entire company before it had been put on the market. Ricardo reached the end of his tether and pulled the deal.

To save face, Goldman Sachs beat Ricardo to the punch and publicly announced that they had reneged before he could declare that it was in fact Elektra’s decision to withdraw from their deal. As one of the most important financial institutions in the U.S., there was no doubt that Goldman Sachs’ voice would be the louder one to foreign investors’ ears. Our reputation was tainted.

In December 1993, the company went public on the Bolsa Mexicana de Valores, the Mexican Stock Exchange, instead. However, in the early ’90s, money in Mexico was barely worth the paper it was printed on. Ultimately, the country produced so many bank notes, the treasury was forced to remove three zeros and temporarily rename the currency. Mexican banks were dry and foreign investors had run a mile, leaving Elektra’s Initial Public Offering (IPO) a with barely a nibble.

I clearly had my work cut out for me.

To top it off, I discovered that Ricardo Salinas and his company were knee deep in debt to fund the recent acquisition of TV Azteca. As the IPO on the Mexican Stock Exchange had been such a disaster, we needed to find another way to raise money.

The first step to attract foreign investors’ attention was to list Elektra on the New York Stock Exchange as Mexican shares. Despite Goldman Sachs’ ruinous discrediting campaign lurking over our shoulders, we went full steam ahead and listed Elektra a month after I started at the company, but to add insult to injury, we couldn’t have coordinated our introduction to the U.S. market with Mexico’s demise any more accurately. Within days of our listing, Mexico’s economy was plunged into an abyss and, needless to say, being a Mexican company amid breaking news flashes announcing the devaluation of the peso, investors weren’t banging our doors down.

We had to find an alternative way to raise money. The main priority was to know what we were ultimately trying to achieve and then work with the very scattered pieces to complete the puzzle we were trying to assemble. No matter how scattered the pieces were, we needed to keep our eye on raising money and not be debilitated by the consecutive obstacles thrown at us: Elektra’s debt, Goldman’s discrediting campaign, the country’s economic doomsday, and as a result, the inevitable failure of our initial fundraising plan.

There is a Buddhist philosophy about reaching your ultimate goal despite the obstacles laid before you. It has taught me to see the bigger picture and not be fazed by the unavoidable challenges every person will face at some point in his or her life. Think of how a river’s ultimate goal is to unite with the ocean. There may be rocks in its way and it may fork off on another route but that doesn’t stop the river from accomplishing its objective to reach the ocean. It prioritizes its effort, first and foremost to get to the ocean, relentlessly flowing forward, around, over or through nature’s obstacles as it paves its way through the terrain, and creates a path where one doesn’t already exist. Geographical obstructions require effort but an effort that comes secondary.

We needed to adopt the attributes of water. It has the greatest potential force out of all the elements in nature and it will eventually wear away the rock over time, just like an obstacle will only block your path temporarily if you don’t let go of your final goal.

In order to focus on your vision, it helps to have a clear idea of the future you are building towards, even if you don’t immediately know how to get there. In a similar fashion to piecing together a puzzle, knowing what the final picture looks like helps you know where to fit the pieces.

At the time Ricardo joined Elektra, he had no experience or insight into the telecommunications industry. What he did have was a vision for the future that involved a convergence of live television, music, telephony, Internet, GPS, applications and pretty much all technological manifestations in one, so over the years he focused on acquiring businesses in each sector with that ultimate goal of merging them.

When Ricardo bought TV Azteca, he had no experience in the television industry and barely knew any of the logistics it would entail but he knew he had to achieve a 30% share of the market in order to make a profit from the acquisition. He also knew he wanted to change the face of television in Mexico. With those goals in mind, he embarked on a journey to achieve them, learning about the novel industry empirically.

There are two lessons to be learned from this. Firstly, if you have a vision—i.e., the puzzle—as you work towards achieving your goal, the pieces will gradually fit in the right places until the puzzle is completed. Secondly, to help you piece together the puzzle, learn to borrow from anywhere you can.

Borrow from your peers, your workforce, your boss, your children and anyone with anything worth taking from. If all else fails, history is an open vault, bursting with pieces you can borrow from. Isaac Newton, paraphrasing Bernard of Chartres, called it “standing on the shoulders of giants”. He used the discoveries scientists had made in the past and built on them to make the even greater achievements that we remember him for.

Piecing together the puzzle can be a case of trial and error. Just like an accomplished standup comedian will test out new routines on an audience to see what they respond to and then develop the jokes that get the biggest laughs, in business often times you need to see what your customer responds to and have the intuition to drop the product or service that isn’t received well. The trick is to be flexible and able to move on as quickly as possible.

Even though Ricardo made a conscious decision not to create any programming, when he first bought TV Azteca, he soon saw that there was a glaring demand for an innovative news format in Mexico and he had the instinct to go back on his word and create what would become TV Azteca’s most popular primetime daily news program, Hechos.

After Ricardo Salinas bought TV Azteca, the political role of Mexican television underwent a major makeover. Few observers expected TV Azteca to pose any real challenge to Mexico’s media giant but they underestimated the country’s insatiable appetite for the truth that they had been deprived of for decades.

The Mexican media learned an important lesson about the economic value of news in January 1994, when armed Mayan Indian rebels from the Zapatista Army of National Liberation (EZLN), led by a charismatic, pipe-smoking mestizo who called himself Sub-commander Marcos, took over several towns in the southern state of Chiapas. The story had instant appeal, and the Mexican press covered it closely. The left-leaning daily La Jornada, which aggressively reported the revolt, found that its circulation doubled, reaching 120,000. The assassination of PRI presidential candidate Luis Donaldo Colosio at a Tijuana campaign rally in March 1994 further fueled the public’s appetite for news. Mexicans turned to the press for information and analysis about the violent events that were transforming their country and TV Azteca was ready to give it to them. The new network found that its ratings soared when it aired controversial stories, such as an interview with Sub-commander Marcos and, within a few years, TV Azteca had siphoned off 40 percent of the prime-time audience. Televisa fought back by upgrading its programming; Mexico’s television war had begun.

As the competition between Televisa and TV Azteca culminated, in 1997 Televisa fired its former megastar and Mexican TV’s first anchorman, Jacobo Zabludovsky. He had presented the stations’ nightly newscast, 24 Horas, for the last 30 years but had done little more than parrot the government’s news bulletins. According to the New York Times, the program was more likely to air a story about a Chicano arts festival in Chicago than a report dealing with the murder of opposition activists in Guerrero. Up until the 1988 elections, as far as the media was concerned, opposition to the PRI simply didn’t exist,¹ mirrored by Mexico’s skewed voting results. But enough was enough. Televisa’s head presenter was unilaterally condemned as a fraud and his ousting symbolized a new era of media broadcasting.

This tense period of public scrutiny was the perfect breeding ground for a revolution in news, which began with Hechos, TV Azteca’s antithesis to 24 Horas. Meaning “the facts,” Hechos was launched on February 21, 1994. For the first time, it included the public as part of the news: people’s daily lives became news because the newscast dealt with what affected them, giving them tools for making decisions. They saw people like themselves on the screen, people who talked like them, while everyone they had watched for the last fifty years had belonged to far-removed strata of society.

Hechos was instrumental in exposing the country to other alternatives in the political arena by presenting the deficiencies of the Mexican government, opening up political dialogue and change. Putting the opposition on the air was fundamental for giving the audience access to information that had never existed before. In the 1997 federal elections, the three major political parties for the first time received essentially equal coverage from both Televisa and Azteca.

In 2000, TV Azteca’s news team followed the campaigns of all the presidential hopefuls, step by step, offering broad election-day coverage. Ricardo instructed his troupe of journalists to liaise with representatives of all political parties, associations, and unions, the different groups of both political circles and civil society, which also implied covering the different electoral campaigns. Recognizing that the Mexican people were not going to tolerate a repeat of the widely regarded corrupt 1988 elections, Azteca contributed to the credibility of the voting system by creating quick counts and exit polls that offered immediate electoral results to compare to the official returns.

On July 2, 2000, the PAN’s Vicente Fox became the first opposition candidate in the country’s history to gain an official victory in a presidential election, an event it is believed would never have occurred without TV Azteca’s balanced electoral coverage.

Even though Ricardo initially announced TV Azteca would not be creating in-house produced programming, the quick decision to respond to the country’s political unrest resulted in the success of the company’s flagship news program, Hechos, as well as highly profitable programming in other genres. TV Azteca introduced a new approach to Mexico’s cherished telenovelas, founded on the realities of Mexican life instead of the impossible melodramatic Cinderella stories audiences were familiar with. It invested $5 million in its telenovela, Nada Personal (Nothing Personal), in which a prominent political figure is assassinated in the first episode. The successful run was succeeded by more similarly innovative programs and, by continuing to respond to the country’s brooding revolutionary sentiment, TV Azteca more than doubled its revenues in what became known as its golden year, spanning from 1996-1997.

I believe in the power of having vision and working as a team to achieve it. The more compatible yet complementary minds you put together the better, a concept Nathan Myrvold grasped when he set up his inventions collaborative. Ricardo had a vision powerful enough for his employees to dedicate themselves towards achieving and I was one of many committed to executing it.

And therein lies Ricardo’s multi-billion-dollar talent: spotting those who are willing to do more and inspiring the rest to follow them. Mexico is run by autocrats with a my-way-or-the-highway-type attitude. They have yes men who agree with every word they say and the rest tend to disappear. Ricardo was set on developing a channel that welcomed new ideas and allowing those with the ideas to take the lead and shine. In order to do so, he would need to nurture the up-and-comers from the get go and watch them mature, challenging and motivating them, and giving them opportunities to blossom.

Andrew Carnegie, who created the largest and most profitable company in the late 1800s and is known to be the second richest man of all time, was willing to pay one of the highest salaries ever earned in America to a 38-year-old employee, Charles Schwab. Why?

Schwab was hired to become the first president of the newly formed US Steel Company in 1921, even though he willingly confessed that he didn’t know more about the manufacturing of steel than other people: “I consider my ability to arouse enthusiasm among my people the greatest asset I possess, and the way to develop the best, that is in a person, is by appreciation and encouragement.”²

He was paid an extortionate salary because he had an invaluable gift to deal with people. He realized the power his employees could potentially garner the company and offered them incentives to do their best.

Do not underestimate the value of your employees. “Borrow” them from other firms. Recruit the best team no matter what the cost. If you’re offering them a better opportunity, then their company is at fault for undervaluing them. Having said that, Grupo Salinas rarely recruits people externally.

The group trains people from a very young age and invests in their future prospects. By rotating our employees around other positions and inter-group businesses, they become exposed to other people and areas that they may have a knack for, while becoming familiar with the company’s core competencies. Salinas’ employees are constantly finding themselves outside of their comfort zone, an effective corporate strategy for pushing employees to achieve their maximum potential.

To be a leader is to know how to get the best out of your workforce because without them you’re a lonely one-man show. Invest in them, offer them ways to learn more, give them incentives to do better and praise them every step of the way.

The University of Michigan’s Noel Tichy, who was hired to run Grupo Salinas’ leadership program, identified three areas: the comfort zone (useless), the learning zone (great) and, beyond that, the panic zone (unproductive). To become top of your game, you must continuously exert yourself just as Plácido Domingo did when he trained his voice to sing the tessitura of a tenor.

In Managing Strategic Change, Noel Tichy wrote, “We are all beings of habit and we tend to repeat what we are comfortable with. This constrains our creativity, prevents us from exploring new ideas, and hampers our dealing with the full complexity of new issues.”³

Grupo Salinas encourages its employees to challenge themselves by continuously throwing them in the deep end. After all, one of Ricardo’s favorite quotes is Albert Einstein’s definition of insanity: “Doing the same thing over and over again and expecting new results.” Ricardo doesn’t like to give his employees the opportunity to plateau. He would rather see someone fall flat on their face over and over while attempting something new to them, than see them stay in their comfort zone, excelling at a task they have already mastered.

Grupo Salinas runs a leadership program for top executives and a few selected employees, which Ricardo is heavily involved in. We are aware that developing CEOs and executives is potentially a company’s biggest investment and worth the time and money spent. Fortune’s Number One Company for Leaders, General Electric’s CEO, Jeffrey Immelt, is said to have spent the time to review the company’s top 600 managers. The best CEOs dedicate a large fraction of their time analyzing and developing their managers, and Ricardo is no exception. He meets with his senior management every week, rotating around each of his companies, being debriefed and either giving his stamp of approval, or not, as the case may be.

When I first started at Elektra, it felt like I was drowning in the deep end, but I was given the independence and resources to prove myself and came out the other end with a huge sense of accomplishment. Without a moment to get complacent, after a turbulent five years as CFO of Elektra, I was transferred to TV Azteca to become its CFO, and before I could get too comfortable again, I was promoted to CEO of Azteca America.

My experience is common within the company as most of the executives have come from another division of the Grupo Salinas conglomerate. Just as Andrew Carnegie and Charles Schwab built much of their company’s success on motivating its employees, Grupo Salinas has built-in incentives to encourage its employees to want to stay at the company, develop their skills and do better. Employees are rewarded for their accomplishments and permanency.

Our clients are also motivated through the opportunity to afford household goods, or get credit to start their own businesses. To be successful, it is key that the company’s and employees’ objectives are aligned towards accomplishing the goals that you set forth and to do so you need a vision strong enough to carry an army.

The way I see it, there are two types of leaders: the visionary and entrepreneur at the helm, who has a goal and will go to all lengths to achieve it, but he cannot reach his destination alone. He needs the other type of leader who will embrace his vision and give all they can to fit the last missing piece into the puzzle, rallying and motivating the rest of the troops to reach the final destination, and then onto the next, and that is where I come into the picture.

I have been blessed to find someone like Ricardo, whom I respect and who inspires me to want to over perform, and in return he trusts me, like he does most of his top executives, and he rewards us well for our hard work.

Andrew Carnegie knew how to choose the best team and how to motivate them with encouragement and praise. He wrote his own epitaph, praising his employees. His tombstone read, “Here lies a man who knew how to enlist the service of better men than himself,” a tactic I am all too familiar with.

When I first came on board at Elektra, I surrounded myself with financial geniuses, recruiting the best experts from each field. My corporate finance leader was Gonzalo Garcia de Luca, who I had brought in from Grupo Posadas, a public hotel operator, and my controller was Mauro Aguirre who I had brought in from Price Waterhouse, our auditors, but the pillar I leaned on most was Manuel González, a corporate finance expert who created the systems that organized millions of Elektra’s customers’ credit histories. Along with Banca Serfin, our team made history despite the odds being stacked against us.

At the start of our conquest, more than anything else, the company’s profile needed to miraculously rise from the ashes. My energy would be best served as a salesman, gaining exposure for the company and promoting its stock among American and other foreign investors—slightly ironically, and fortuitously for me, that meant I could leave the finance element of being a Chief Financial Officer to the experts!

Over the course of my career at Grupo Salinas, I filled any role where there was an opportunity for me to offer my skills, going from promoting the company stock and investor relations to raising money, finance restructuring and establishing TV Azteca’s U.S.-based network. I learned that by building the best team to support me and compensate for the skills I lacked, we could do just about anything.

Over the next 15 years, Elektra’s value on the Mexican stock exchange increased from less than $1 million to $20 billion; we were the first company to raise money from the Mexican public by selling below-the-radar borrowers’ collateralized debt; and, in 2002, Banco Azteca was awarded its banking license, the first bank in Mexico catering to the bottom of the pyramid. In addition to stand-alone branches, Banco Azteca was set up within Elektra’s retail stores, which was, again, unprecedented in Mexico.

My biggest challenge at Elektra was to expand its financial services business at a time the Mexican economy was in a shambles. Foreign investors had gutted our central bank of its reserves and so there was very little money available for banks to lend. It was just at that dire moment in the mid 1990s that it came to our attention that we had taken too many loans from Mexican banks and there was a huge risk of another devaluation. We didn’t have our own banking license, which was a huge set back as it meant that in order to expand we had to keep borrowing more from the big boys, who did not have the money, and if they did it was at extortionate interest rates. As we sold most of our goods on credit, we needed to borrow more and more in order to cover our customers’ growing demand. Even though we had large lines of credit secured in their books, the Mexican banks had no money to cover those lines and had to be especially frugal because many of them were being supervised by the government for being way too under-capitalized.

My first assignment was to convince those banks that if they had any surplus cash at all, lending it to us would be their best option, but I wasn’t optimistic and needed to find an alternative solution. I began looking at foreign investment options, spending the first six months of 2005 having breakfast, lunch and dinner with bankers and businessmen from Mexico, the U.S., Europe, or Kuala Lumpur for all I cared, as long as they had money to lend.

Even though our company was small—and Mexican—our story was catchy, and word spread fast. While the global economy may be on a roll as China, India and many other developing nations are measuring astonishing rates of economic growth and taking millions out of poverty, the fact remains that half the world’s population lives on less than $2 per day. How to help alleviate global poverty is the most vital economic and social question of our time, and one that we were attempting to answer.

Crowds of investors filled auditoriums to listen to our presentation, which laid out Elektra’s mission: to provide progress to the population at the Bottom of the Pyramid through affordable goods and services, explaining what we could offer our clients at the time and how much room for expansion there still was.

In New York, an investor brought his two young children to watch my presentation, and during my lecture, his eleven-year-old son raised his hand and asked, “Why can’t everyone in Mexico buy a TV?” I asked the boy’s father if I could hire him!

The crux of my presentation was twofold: emphasizing the responsibility we have to help the BOP escape their socioeconomic apartheid—an altruistic notion that, alone, would most likely fail to capture their attention—but also proving the profit potential that it has, opening up the global financial markets to an entirely new customer market and asset class. In other words, corroborating the author of The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, Paul Collier’s mantra: “Compassion allows us to roll up our sleeves and get started, while self-interest helps us work seriously to eradicate poverty.”

Although formal credit and savings institutions for the poor have existed for decades, nobody better serves as an example of eradicating poverty through loans than Muhammad Yunus, an economics professor from Vanderbilt University. Yunus was working in Bangladesh in 1976 when he decided to take action and do something about poverty instead of just studying the theories behind it. The professor dispensed a total of $27 in small loans to 42 impoverished people caught in the clutches of moneylenders because banks refused to loan money to poor people. The professor kept up his banking experiment and in 1983 he launched Grameen Bank. He now loans out $1 billion worth of microloans a year, across 81,373 villages, to 8 million people who are far too poor, remote, or uncollateralized for establishment banks. The repayment rate of Grameen’s loans is about 97.24% and the bank has earned a profit all but three years since its inception. Needless to say, it wasn’t long before other financial institutions followed suit in an attempt to meet the escalating global demand for microfinance loans, which Deutsche Bank estimates is about $250 billion, 10 times the amount that has been lent.

Up until the mid-’90s, most of Elektra’s customers had most likely never had the opportunity to borrow money as, like the poor in Bangladesh, no financial institution was willing to lend it to them. In the world of bureaucracy, on paper they may as well have been ghosts—a huge risk with no records to analyze. They were marginalized into the country’s informal economy and without the help of microlenders like us they would have no hope of ever breaking out of the vicious circle trapping them into a quagmire of poverty.

We were on a mission to break the mold and convince investors to join us on our crusade, but nobody could fathom the idea that our payment systems were more secure than most of the ones they were familiar with. They thought Grameen Bank’s success was an anomaly and didn’t believe that we could get even a majority of our borrowers to pay back their loans, but what really caught their attention was the proof. Elektra boasted a sustained history of 97% successful collections and a reserve of 5% allocated to cover the defaulted payments. Our system had a much higher success rate than most large banking institutions or retail chains that catered to the wealthy and refused customers like ours.

The microfinance revolution exploded in the ’90s and the model has proven again and again that financial services for the bottom of the pyramid sector can cover their full costs, through adequate interest spreads, relentless focus on efficiency and proactive enforcement of repayment. Financially below-the-radar borrowers are more likely to pay back their loans for two main reasons: they have more to lose if they don’t and the systems that have been set up to ensure their payments are collected are tailored to ensure that they do.

We very carefully analyzed who we would lend money to, but even though a lot of our borrowers didn’t have a credit history or assets such as a house to borrow against, there were other ways we could investigate the consumer to make sure we felt comfortable they would be able to repay their loan. After a prospective borrower filled out an application, Elektra would send an investigator to the applicant’s house to interview them about their job and family, see what the condition of their house was and assess who their neighbors were. If we felt a client didn’t have a sufficiently reliable income, we would calculate if the depreciated value of the goods they already owned was enough to cover the debt or ask for a co-borrower to vouch for them.

The key to our payback success lay mainly in the efficiency of our collections system. Instead of the monthly installments that existed before the 1980s’ economic crash, we collected weekly payments. Paying smaller sums more regularly would be less daunting for our borrowers when it came to delving into their pockets at the end of each month and, because Elektra’s customers tended to get paid weekly rather than the more traditional monthly or semimonthly pay periods, it made more sense for them.

At the time Elektra was reestablishing its credit business in 1991, approximately 83% of our customers were up- to-date on their payments each week. We put a great deal of resources into training our army of investigators and collection agents so that, with a lot of persistence and by restructuring their payments plans to suit them, the remaining customers eventually paid their loans back too—even if it took months.

The icing on the cake for potential investors was the enormity of this untapped market. Although difficult to measure precisely, depending on what you classify as BOP, Mexico has an estimated 78 million people (70% of Mexico’s total population) who are not being tapped by traditional banks.

After a lot of schmoozing and mind-numbing paperwork, we finally secured three lines of credit, one of which included the $25 million Bank of America loaned to us against our receivables from Elektra’s money transfer agreement with Western Union.

This bank credit we had secured helped for a while but again we outpaced their lending capabilities and desperately needed to find a source of more money. But from where?

We realized that we were in a vulnerable position because we had credit lines scattered all over the place and many of them were in dollars. Given the Mexican economy’s precariousness, in the event of another devaluation, it would be less of a risk and much cheaper for us to restructure our accounts’ receivable and sell them on the Mexican market, circumventing the banks altogether. But again, how?

In essence, we would be selling the returns from our loans and issuing a paper in exchange. Let’s say you loan someone US$500 for a year and over the next 12 months you collect a percentage of your principal loan plus the interest you are charging for the loan, in weekly installments. The fixed income you anticipate collecting every week is the receivable. Now you group that account with a bunch of other accounts belonging to people who owe you money and you sell that portfolio of receivables on the financial market.

This formula sounds simple in theory but, at the time, nothing like it had ever been done in Mexico and the banks were skeptical to take on the responsibility. The authorities, rating agencies and banks were betting against us, so the entire exercise was an uphill battle.

One thing we had working in our favor was a solid track record of lending and collecting our receivables, but we needed a bank to help us package the portfolios and convince the government to let us sell these precarious accounts directly to the public.

Word got out about what we were trying to do and a few Mexican banks approached us to discuss how we could go about bundling our receivables. However, neither the authorities nor the rating agencies, nor the banks, believed that we could possibly have a 3% default rate because of who our borrowers are, so we had to prove it.

The banks carried out very intense analyses of our intricate business model of lending to people who were under the credit bureaus’ radar, or for that matter, under any radar whatsoever, including the Mexican revenue services’, as most of them didn’t pay taxes. As debt had never been securitized and sold to the public in Mexico, it was like the blind leading the blind. Nobody could tell us exactly what would be required, but all the banks agreed on one thing: we would have to put a hefty package together to take to the market.

In the end, we chose Banca Serfín, which later was acquired by Santander, to help us mastermind the complex reporting system. It was impossible for me to conjure up the records they were demanding out of thin air, especially since nobody knew exactly what it is they wanted from us. There was no precedent to follow because the below-the-radar market sector in question had never been regulated, and I had absolutely no clue where to start guessing because I had never even worked in finance before—which is why my pillar, Manuel González, was so instrumental in our “Mission: Impossible.”

We needed to provide evidence to prove that we lived up to or exceeded our projected 97% collections rate and that the accounts would continue to perform. This meant having to create a reporting system third parties could analyze, documenting every single one of our million accounts, including the credit history of the borrower (in the unlikely event they had one), the weekly status of incoming payments and when the account expired because it had been delayed or paid off. Then we had to guarantee that when an account expired it would be replenished with a new one and prove we had enough reserves to cover the deficit. And Manuel González saved the day by inventing a programming system that created and organized millions of our customers’ financial records that third parties could comprehend. Voilà, the evidence.

It took us nearly two years to complete four ridiculously arduous steps before we could even go to the market—but that didn’t imply the portfolios would sell.

1. Firstly, at Serfin’s request, we had to open up our new programming system to third-party auditors who scrutinized all our records and accounts.

2. Once we got past the bank, we had to tackle our next obstacle: the Mexican government. We needed its authorization of the securitization program in order to take it to the public market, but as collateralizing debt of this nature was unprecedented in Mexico, they clearly had no idea what to do with us and our proposal. We approached Nafinsa, a Development Banking Institution that acts as an agent to the government, and told them what we were intending to achieve. In return they spurted out more requirements than I could possibly digest, most likely educating themselves at our expense.

3. Next the rating agencies had to rate our portfolios. Without a rating, the interest rates would either be too high or we would be prohibited from taking it to the market altogether. Standard & Poor’s, a pioneer rating agency in Latin America, wouldn’t touch Elektra, so we went to Fitch Investor Service who gave it an AA and Duff & Phelps who approved a MAA rating.

4. Lastly, a bank had to sponsor the issue of bonds, which required them to do due diligence on our package, which they would then sell to investors. The bank’s approval was much easier to achieve than getting past the government and ratings agency. It is the investors who buy the bonds who are taking the risk but the banks need to be diligent as, by sponsoring the bonds, they are putting their reputation on the line.

5. In July 1997, we finally went to market, praying the securitized debt bundles would sell. The first tranche was $30 million, which led to about $600 million worth of securitized bundles, allowing the market to finance our growth until we were able to secure our own bank license.

Finally, in April 2002 Banco Azteca was awarded the first banking license in Mexico in ten years. It was a huge feat because, although Elektra had a financial services division that enabled it to loan customers money, it relied entirely on the infrastructure and support of other banks that did not want to risk loaning to the below-the-radar market themselves. A significant portion of the banking regulations that applied to the market segment that Elektra caters to did not exist and so many of the rules for running the bank had to be invented and developed. Secondly, there was no precedence for setting up a bank within a retail chain, so the Mexican authorities were reticent to grant them a license to do so. Nevertheless, Ricardo and his team convinced the authorities that they could comply with the highly regulated environment of the banking sector and the license was issued. At the time, four foreign giants controlled 80% of the market in Mexico: Britain’s HSBC, Spain’s BBVA, Citibank’s Banamex and Spain’s Santander Serfín. The traditional banks—tied down by their paralyzing, self-inflicted regulations and by the slow economy—were only servicing 15 percent of the public.

It took a whirlwind six months from the day the banking license was granted in April 2002 for Elektra to open 820 branches. By the morning of October 26, functioning network systems in each location were lit up. By the end of their first year, Banco Azteca had $8 billion pesos in deposits, nearly triple the amount financial analysts had predicted. Accounts sprouted up from everywhere as Banco Azteca enticed middle-to low-income people to take their savings out from under their mattresses, 80% of whom had never had a bank account. Today Banco Azteca has more than 15 million accounts in a country of around 25 million households, with a total of more than $60 billion pesos in deposits—more than anyone could ever have fathomed.

Despite loaning to the poorest people in the country, with a 97% repayment rate Banco Azteca has managed to maintain a higher average of collections over traditional Mexican and U.S. lenders. Even though two direct competitors, Famsa and Coppel, were granted banking licenses for their retail chains in 2006, Azteca, the leader of the pack, has retained the most customers and the lowest non-performing ratio, with no sign of abating.

Our money problems had come to an end, although that happened three years after I had moved on to be the CFO at TV Azteca and CEO of Azteca America shortly after that.