From Pawn Shops to Banks: The Impact of Banco Azteca on HouseholdsCredit and Saving Decisions

This research examines the e¤ects of relaxing credit constraints on households’ saving and credit choices. I focus in the opening of a new bank in Mexico that targeted workers of the informal sector that were previously denied access to bank credit. I …rst explore the di¤erence-indi¤erence e¤ects of the appearance of this bank. Important changes are found in households from municipalities with branches of this new bank, whose members are employed in the informal sector. First, they are three times more likely to use bank credit. They are also 46% less prone to obtain pawn-shop credit. I also …nd some evidence that they are 15% less likely to keep precautionary savings, and they increase their percapita consumption by 46% when faced with a bad income shock. I then develop and estimate a dynamic structural model that I use to evaluate the e¤ects of setting a ceiling on the interest rate this new bank charges, which is a very popular regulation suggested by several policy makers in Mexico. The model predicts that capping the interest rate would make the bank close its branches in some municipalities that now have a branch, resulting in a general loss of households’welfare.