Navigating Challenges: Assessing MSE Resilience in Mexico

Micro and small enterprises (MSEs) in Mexico deploy an array of actions to overcome shocks, including using savings, requesting loans, reducing business expenses, working overtime, reducing household expenses, among others. This proposed framework seeks to capture this range of actions through capabilities, understood as the combination of assets, strategies and behaviors. We consider four types of capabilities: (1) financial; (2) operational and digital; (3) entrepreneurial, and (4) psychosocial.

The findings reveal eight central aspects of the resilience of MSES:

• Psychosocial capabilities are found more frequently than financial, operational, digital and business capabilities. It is not surprising given that the majority of the companies surveyed survived the Covid-19 pandemic.
• Unexpected expenses or emergencies are experienced by virtually all companies surveyed, and often result in sharp reductions in business income.
• MSEs employ a wide range of resilience mechanisms, especially in the face of larger shocks that reduced profits. The average number of mechanisms used is 2.4.
• Resilience is positively associated with companies with at least one salaried employee, those with a higher profit, and those that are led by young people with a higher educational level.
• Savings is the most common mechanism to deal with unexpected expenses or emergencies of different magnitudes. Its importance is greater for those of lesser severity. Access to savings in case of emergency is associated with greater resilience of MSEs according to econometric estimates
• MSEs that use at least three digital tools showed greater resilience, measured by those that recovered faster from a crisis, according to econometric estimates
• The sense of control over the business, called agency, is positively associated with faster overcoming unexpected expenses or emergencies; However, four in 10 mentioned having little or no control over their businesses
• The ability to restore necessary supplies to the business with little difficulty was positively associated with greater resilience