Impact of Increased Banking Services on Household Welfare: The Case of Banco Azteca in Mexico

Jennifer Muz, University of California, Irvine

The changing landscape of microcredit may be one reason that recent evidence does not find that microfinance to be as effective as a poverty alleviation tool as earlier research suggested. Recently, private, for-profit organizations have entered the market, offering individual liability loans that look very different from the products offered by the early movers, such as Grameen Bank or BRAC in Bangladesh that offered group-liability loans for business purposes and encouraged transformation in the household. I explore this hypothesis by studying the entrance of a for-profit bank, Banco Azteca, which offers microloans for any purpose to poor households in Mexico. I find evidence that households in Banco Azteca municipalities have decreased consumption expenditures and asset holdings three years later. This is consistent with predictions of a buffer stock savings model, in which households sell off assets in response to a new credit source.

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Presented in Session 220: Building Savings, Assets, and Wealth