| Abstract: |
This paper examines the effects of expanding access to credit on the decisions
and welfare of households. It focuses on the entry of Banco Azteca, the first
bank in Mexico targeting households from the informal sector. Panel data
suggest that informal households in municipalities with Banco Azteca branches
experienced several changes in their saving, credit and consumption patterns.
In order to estimate the impact of Azteca's entry, the paper develops a
dynamic model of household choices in which the bank is endogenously selecting
the municipalities for branch openings. The analysis finds that in
municipalities in which the bank entered, households were better able to
smooth their consumption and accumulate more durable goods even though the
overall proportion of households that save went down by 6.6 percent. These
results suggest that the use of savings as a buffer on income fluctuations
declines once formal credit is available. What is more, these effects vary
across households. Among informal households, those who never receive formal
job offers have the highest decline in saving rates. The model is also used to
evaluate a legislation to cap interest rates levied by formal credit
institutions. Simulations suggest that if the Mexican government were to cap
the interest rate of Azteca at the rate for traditional banks, Azteca would
stop operating in the poorest and least populated municipalities. |