Ruiz, Claudia2014-02-042014-02-042013-10https://hdl.handle.net/10986/16851This 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.en-USCC BY 3.0 IGOABSENCE OF CREDITACCESS TO BANKACCESS TO CAPITALACCESS TO CREDITACCESS TO FORMAL CREDITACCESS TO LOANSALTERNATIVE CREDITAMOUNT OF DEBTAVAILABILITY OF CREDITBANK BRANCHBANK BRANCHESBANK CREDITBANK LOANBANK LOANSBANKSBORROWINGBRANCH LICENSINGBUDGET CONSTRAINTCASE STUDYCOLLATERALCOLLATERAL REQUIREMENTSCOMMERCIAL BANKSCONSUMER CREDITCONSUMER INTERESTSCONSUMER PRICE INDEXCONSUMPTION EXPENDITURESCONSUMPTION INCREASESCONSUMPTION LEVELCONSUMPTION SMOOTHINGCOOPERATIVESCREDIT ACCESSCREDIT ARRANGEMENTSCREDIT HISTORYCREDIT INCREASESCREDIT INSTITUTIONCREDIT INSTITUTIONSCREDIT MARKETCREDIT MARKETSCREDIT OPTIONSCREDIT PRODUCTSCREDIT PROGRAMCREDIT PROVIDERSCREDIT SCHEMESDEBTDEFAULT RATEDEFAULTSDEMAND FOR CREDITDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDEVELOPMENT RESEARCH GROUPDURABLEDURABLE GOODDURABLE GOODSDURABLESECONOMIC ACTIVITYECONOMIC GROWTHECONOMIC RESEARCHECONOMIC SITUATIONECONOMIES OF SCALEEDUCATION LEVELELASTICITYELASTICITY OF SUBSTITUTIONELIGIBILITY CRITERIAEMPLOYMENT OPPORTUNITIESENTREPRENEURSEXPECTED VALUEEXPENDITUREEXPENDITURESFAMILY BUSINESSFEDERAL RESERVEFINANCIAL ACCESSFINANCIAL INSTITUTIONSFINANCIAL SECTORFINANCIAL SERVICESFINANCIAL STUDIESFIXED COSTFORMAL CREDITGOODS AS COLLATERALGOVERNMENT CREDITHIGH INTEREST RATESHOLDINGHOUSEHOLD FIXED EFFECTSHOUSEHOLD LEVELHOUSEHOLD SAVINGHOUSEHOLDSHUMAN DEVELOPMENTINCOMEINCOME LEVELSINCOME SHOCKINCOME SHOCKSINDICATOR FUNCTIONINFORMAL CREDITINFORMATION ON CREDITINSTRUMENTINSURANCEINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERPOLATIONLEGISLATIONLENDERLEVYLIQUID ASSETLIQUID ASSETSLIQUID SAVINGSLIQUIDITYLIQUIDITY CONSTRAINTSLOANLOAN AGENTLOAN AGENTSLOAN APPLICANTSLOAN PROCESSLOAN REQUESTLOAN SIZELOAN SIZESLOANS FROM BANKLOANS FROM BANKSLOANS FROM FRIENDSMARKET PRICEMATURITYMFIMFISMICRO ENTREPRENEURSMICROCREDITMICROFINANCEMICROFINANCE INSTITUTIONMONEYLENDERSMUNICIPALITIESNATIONAL INCOMENATIONAL LEVELNEW BUSINESSOPERATING COSTOPERATING COSTSPAWNPAWN SHOPPAWN SHOPSPAWNSHOPPAWNSHOPSPAYMENT HISTORIESPEER PRESSUREPER CAPITA INCOMEPERSONAL LOANPOOR HOUSEHOLDSPOSITIVE EFFECTSPRODUCTION FUNCTIONPRODUCTIVITYREPAYMENTREPOSSESSIONRETURNRETURNSRISK AVERSIONRISK SHARINGRURAL BANKRURAL BANK BRANCHESRURAL BANKSSAVINGSSECURITIESSIMULATIONSSOCIAL BANKINGSOCIAL SECURITYSTANDARD DEVIATIONSTANDARD ERRORSSTOCKSUNEMPLOYMENTUTILITY FUNCTIONVALUE OF COLLATERALVILLAGEVILLAGE FUNDVILLAGESWorld Bank10.1596/1813-9450-6634