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From Pawn Shops to Banks: The Impact of Banco Azteca on Households' Credit and Saving Decisions

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  • Claudia Ruiz

    (UCLA)

Abstract

This research examines the effects 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 first explore the difference-in-difference effects 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 find 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 effects 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.

Suggested Citation

  • Claudia Ruiz, 2010. "From Pawn Shops to Banks: The Impact of Banco Azteca on Households' Credit and Saving Decisions," 2010 Meeting Papers 969, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:969
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    References listed on IDEAS

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    1. Keane, Michael P & Wolpin, Kenneth I, 1994. "The Solution and Estimation of Discrete Choice Dynamic Programming Models by Simulation and Interpolation: Monte Carlo Evidence," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 648-672, November.
    2. Bruhn, Miriam & Love, Inessa, 2009. "The economic impact of banking the unbanked : evidence from Mexico," Policy Research Working Paper Series 4981, The World Bank.
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    Cited by:

    1. Juan Sebastian Cubillos-Rocha & Juliana Gamboa-Arbelaez & Luis Fernando Melo-Velandia & Sara Restrepo-Tamayo & Maria Jose Roa-Garcia & Mauricio Villamizar-Villegas, 2021. "Effects of interest rate caps on credit access," Journal of Regulatory Economics, Springer, vol. 60(2), pages 117-139, December.
    2. Oyewo Babajide Michael & Oyewole Oyedayo Sharon, 2014. "Financial System, Financial Inclusion and Economic development in Nigeria," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 2(3), pages 139-148.
    3. Gutiérrez, Emilio & Teshima, Kensuke, 2016. "Does household financial access facilitate law compliance? Evidence from Mexico," Economics Letters, Elsevier, vol. 149(C), pages 120-124.
    4. Arturo GARCÃ A-SANTILLÃ N, & Jesica RAMOS-HERNÃ NDEZ, & Sara HERNÃ NDEZ-GONZÃ LEZ, & Patricia RIVERA-SANTIAGO, 2017. "Pawnshops: Are They Really A Solution For The Vulnerable Population?," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(1), pages 1-52, January.

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