Publication: The Economic Impact of Expanding Access to Finance in Mexico
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Published
2009-10
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Date
2012-08-13
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Love, Inessa
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Abstract
The ninth in series of impact notes examines the impact of a large-scale banking expansion in Mexico, showing that simply increasing access to finance can have important economic effects.
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“Love, Inessa; Bruhn, Miriam. 2009. The Economic Impact of Expanding Access to Finance in Mexico. Finance & PSD Impact; No. 9. © World Bank. http://hdl.handle.net/10986/10229 License: CC BY 3.0 IGO.”
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The authors find that the self-reported demand for loans is low. Nevertheless, the incidence of credit constraints is pervasive, especially among individual entrepreneurs. The low use of loans has consequences for the amount of investments that occur in the rural economy, posing a major obstacle to Mexico s convergence towards its NAFTA partners. The empirical analysis, which includes proxies of business prospects and creditworthiness, shows that improving the availability of loans to credit constrained agents would increase the number of agents making investments and their investment to capital ratios.Publication From Pawn Shops to Banks : The Impact of Formal Credit on Informal Households(World Bank, Washington, DC, 2013-10)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.Publication Connecting the Disconnected : Coping Strategies of the Financially Excluded in Bhutan(Washington, DC: World Bank, 2013-03-12)In the spring of 2012, the Royal Monetary Authority of Bhutan and the World Bank commissioned a diagnostic assessment of financial practices and strategies among urban and rural Bhutanese. The resulting survey, the Bhutan financial inclusion focus group survey, represents one of the first efforts to capture household financial management practices in the country. The assessment, undertaken at the request of a government working group led by the Royal Monetary Authority, was designed to inform Bhutan's Financial Inclusion Policy by providing information about households' use of and demand for financial services. Since the research mainly captures the perspectives of Bhutanese households, this report does not present recommendations. Instead, its findings from the field research provide qualitative evidence that has informed the financial inclusion policy by highlighting opportunities and challenges in increasing financial inclusion.Publication What Does Debt Relief Do for Development? Evidence from India’s Bailout Program for Highly-Indebted Rural Households(2012-11)This paper studies the impact of a large debt relief program, intended to attenuate investment constraints among highly-indebted households in rural India. It isolates the causal effect of bankruptcy-like debt relief settlements using a natural experiment arising from India's Debt Relief Program for Small and Marginal Farmers -- one of the largest debt relief initiatives in history. The analysis shows that debt relief has a persistent effect on the level of household debt, but does not increase investment and productivity as predicted by theories of debt overhang. Instead, the anticipation of future credit constraints leads to a greater reliance on informal financing, lower investment and a decline in productivity among bailout recipients. The results suggest that one-time settlements may be insufficient to incentivize new investment, but can have significant real effects through their impact on borrower expectations.
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