Banks and Entrepreneurs in Porfirian Mexico: Inside Exploitation or Sound Business Strategy?

Abstract

Banks in Porfirian Mexico widely engaged in the practice of making long-term loans to their own directors, a practice known as ‘auto-prestamo’. This was neither pernicious nor fraudulent. Rather, Porfirian banks behaved as the financial arms of extended kinship and personal business groups. These groups used banks to raise impersonal capital for their diversified enterprises and give their partnerships a more permanent institutional base. Investors in these banks knew full well that they were investing in the businesses of a particular group and developed sophisticated techniques to monitor bank directors. However, because entry into banking was severely restricted under Porfirian law, the system concentrated economic power in a few hands and contributed to Mexico's oligopolistic industrial structure.