Expansion of Formal Financial Services and Inter-Household Transfers: Side Effects of the Entrance of Azteca Bank in Mexico

Jose A. Martinez, Duke University

The expansion of formal financial services is an ongoing phenomenon in low income countries. Nowadays, it is common that retail companies decide to open a commercial bank with branches within each of its multiple stores. The retail-store banks are characterized by its vast geographical coverage and products that target low-income households. In this study, I take advantage of the unique characteristics in the opening strategy of Azteca Bank and the comprehensive panel data in the ``Mexican Family Life Survey" to estimate the impact of formal financial services expansion on the local safety net (LSN). The results show that the expansion of formal financial services weakens the LSN for households with low welfare. The probability of receiving/giving transfers has decreased by 22% for these households. Even more, I show that, as a consequence of the Azteca Bank entry, low welfare households rely less on their LSN to deal with idiosyncratic shocks.