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The Real Impact of Improved Access to Finance: Evidence from Mexico

Authors

  • MIRIAM BRUHN,

  • INESSA LOVE

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    • Miriam Bruhn is in the Development Economics Research Group (DECRG) at the World Bank. Inessa Love is at the University of Hawaii at Manoa and in DECRG at the World Bank. We thank the Knowledge for Change Program for supporting this project with funding and Kiyomi Cadena for providing excellent research assistance. We are also grateful to David McKenzie and to James Vickery for their very useful comments. The views expressed in this paper do not necessarily represent those of the World Bank, its Executive Directors, or the countries they represent.


ABSTRACT

This paper provides new evidence on the impact of access to finance on poverty. It highlights an important channel through which access affects poverty—the labor market. The paper exploits the opening of Banco Azteca in Mexico, a unique “natural experiment” in which over 800 bank branches opened almost simultaneously in preexisting Elektra stores. Importantly, the bank has focused on previously underserved low-income clients. Our key finding is a sizeable effect of access to finance on labor market activity and income levels, especially among low-income individuals and those located in areas with lower preexisting bank penetration.

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