expanding access to finance and entrepreneurial activity: evidence from mexico. miriam bruhn inessa...
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Expanding Access to Finance and Entrepreneurial Activity: Evidence from Mexico.
Miriam BruhnInessa Love
May, 2009
Motivation
Access to Finance is associated with growth and poverty alleviation (World Bank, 2008, Honohan, 2004)
While the microfinance industry has expanded, there is little casual evidence on its impacts (Harford, 2008, Karlan and Morduch, 2009)
Even less is known about the channels
This Paper
Use a diff-in-diff methodology to study the impact of increased access to financial services to low- and middle-income households on employment choices and income levels
The event: in October 2002, Grupo Elektra launched Banco Azteca, opening a total of 815 branches in all pre-existing Grupo Elektra stores
A Bank for the Underserved
Population "Banco Azteca will improve access to goods
and services for our people. A major impediment to the growth of the Mexican middle class has been the lack of access to credit, one of the main vehicles for personal financial improvement. Banco Azteca will demonstrate the importance of offering financial services to this under- served segment of the Mexican population."
Ricardo B. Salinas, Chairman of the Board ofGrupo Elektra (Reuters, 2002)
Bank for
“We changed banking,now it’s your time to change”
Unique features of Banco Azteca: Low documentation (personal guarantees
accepted instead of documents) 3000 motorcycle-riding agents Extensive experience making small installment
loans and large database of 4 mil. past clients Small loan size - $250-$500 (comparable to
microfinance, $360)
Made it possible to reach the previously“un-bankable” population
BUY A TOASTER, OPEN A BANK ACCOUNTBanco Azteca caters to the little guy--in appliance stores 13 January 2003 BusinessWeek 54, Number 3815
Pedro Rubio was in a bind. The 56-year-old carpenter needed to come up with thousands of pesos in notary fees to get legal title to his modest cinderblock house….. But Rubio, who earns the equivalent of $600 a month, had no proof of income and no bank account.
So on a recent morning, he walked through his gritty Mexico City neighborhood to an Elektra appliance store. At the back, behind an aisle of microwave ovens, he sat down with a loan officer from a new bank, Banco Azteca. Unfazed by Rubio's worn jeans and unshaven face, the officer drew up an inventory of his possessions: TV, refrigerator, washing machine--all bought on credit at Elektra in the past three years. Accepting these as collateral, the bank approved Rubio's application within 24 hours.
The nine-month, $200 loan carries a 48% annual interest rate, usurious by U.S. standards but not in Mexico, where the banking sector is still recovering from the effects of the 1994 peso crash.
“It's a little expensive,'' says Rubio. Still, he says he can swing the weekly $8 payments. In any event, he adds, “I don't really have any other option.”
Map of Municipalities with Banco Azteca Branches and Other Bank Branches
A Non-Trivial Impact on the Financial Market (1)
While Elektra was offering installment loans even before Azteca opened, the amount of loans grew significantly after the event Because of access to cheaper capital –
deposit base and lower cost of capital due to bank status
Elektra / Azteca’s Loan Portfolio over Time
-
2,000
4,000
6,000
8,000
10,000
12,000
2000
1
2000
2
2000
3
2000
4
2001
1
2001
2
2001
3
2001
4
2002
1
2002
2
2002
3
2002
4
2003
1
2003
2
2003
3
2003
4
2004
1
2004
2
2004
3
2004
4
Quarters
Gru
po E
lekt
ra’s
loan
por
tfolio
(m
illio
ns o
f pes
os)
A Non-Trivial Impact on the Financial Market (2)
Number of savings accounts also grew rapidly in municipalities with Azteca branches
Impact of Azteca Opening on Savings Accounts over Time
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2000
2
2000
3
2000
4
2001
1
2001
2
2001
3
2001
4
2002
1
2002
2
2002
3
2002
4
2003
1
2003
2
2003
3
2003
4
2004
1
2004
2
2004
3
2004
4
Quarter
Coe
ffic
ient
s on
Azt
eca
Mun
icip
aliti
es in
Dec
200
2 *Q
uarte
r Dum
mie
s
Questions We Address in this Paper
How did increased access to financial services impact Entrepreneurial activity Individual employment choices Income levels
How do these effects vary by gender.
Data Mexican National Employment Survey (ENE)
Covers a random sample of approximately 150,000 households each quarter
Households remain in the survey for five consecutive quarters
2000-II to 2004-IV (19 quarters in total, 10 before and 9 after event)
Intended to measure employment and size of informal economy
Final sample Only municipalities with any bank branch
(comparability) 576 municipalities, of which 249 (43%) had an Azteca
branch in forth quarter of 2002, and 327 did not have an Azteca branch, but had a branch of a different bank
Methodology We explore cross-municipality and cross-time
variation in Azteca branches
Where: Azteca is a dummy for municipalities which had at least
one Azteca branch in 2002-IV After is a dummy for after 2002-IV Y is individual outcome variables, Z – individual controls
icticttctcict ZAfterAztecay ***
Variables Outcome variables
Informal business owner dummy Formal business owner dummy Wage earner dummy Not Employed dummy Above minimum wage dummy Log monthly income +1
Controls Age, gender, marital status, and education
dummies
Identification Issues (1)
Differences in levels across municipalities is not a concern
Summary Statistics Levels
Municipalities with any Azteca branch
in Dec 2002
Municipalities without Azteca, but with other branch in
Dec 2002
Coefficient of Azteca dummy
(1) (2) (3)Outcome Variables LevelsInformal business owner dummy 0.0821 0.1380 -0.0560***
(0.2745) (0.3449) (0.0087)Formal business owner dummy 0.0790 0.0656 0.0134***
(0.2697) (0.2475) (0.0033)Wage earner dummy 0.4969 0.4403 0.0566***
(0.5000) (0.4964) (0.0111)Not Employed dummy 0.3417 0.3560 -0.0143**
(0.4743) (0.4788) (0.0067)Above minium wage dummy 0.5827 0.4763 0.1064***
(0.4931) (0.4994) (0.0161)Log monthly income +1 4.9999 4.4705 0.5294***
(3.9346) (3.8103) 0.0918
Pre-Azteca Averages of Individual Level Variables
Note : Standard errors in parentheses (clustered at municipality level). The employed include wage earners and self-employed/business owners. Changes are changes in ENE municipality averages from one quarter to the same quarter of the next year, using data from 2000-II to 2002-III Significance levels: * 10%, ** 5%, *** 1%
Identification Issues (2)
Difference in changes might bias our results
Summary Statistics Changes
Municipalities with any Azteca branch
in Dec 2002
Municipalities without Azteca, but with other branch in
Dec 2002
Coefficient of Azteca dummy
(1) (2) (3)Outcome Variables ChangesInformal business owner change -0.0023 -0.0010 -0.0013
(0.0388) (0.0551) 0.0021Formal business owner change 0.0049 0.0055 -0.0005
(0.0264) (0.0360) (0.0014)Wage earner change -0.0038 0.0031 -0.0068***
(0.0486) (0.0690) (0.0026)Not Employed change 0.0012 -0.0075 0.0087***
(0.0467) (0.0649) (0.0025)Above minium wage change 0.0001 0.0059 -0.0059**
(0.0516) (0.0650) (0.0026)Log monthly income change 0.0311 0.0982 -0.0671***
(0.3612) (0.4593) (0.0182)
Pre-Azteca Averages of Individual Level Variables
Note : Standard errors in parentheses (clustered at municipality level). The employed include wage earners and self-employed/business owners. Changes are changes in ENE municipality averages from one quarter to the same quarter of the next year, using data from 2000-II to 2002-III Significance levels: * 10%, ** 5%, *** 1%
Identification Issues (3)
Our results may be biased against Finding a positive effect on the fraction of
wage earners Finding a negative effect on the fraction
of not employed Finding a positive effect on income
Our estimates are on the conservative side
Reducing the Biases
Group–trends (municipalities with and without Azteca are allowed to have different trends)
Each municipality is allowed to have a different trend
Graphical analysis
Aggregate Results
Informal business owners Higher proportion in municipalities
with Azteca after Azteca opened
Impact on Informal Entrepreneurial Activity
(1) (2) (3)Complete SampleAzteca*Post Dec 2002 0.0062** 0.0062** 0.0067**
(0.0027) (0.0028) (0.0027)
R-squared 0.069 0.057 0.069No. of observations 4,728,268 4,728,268 4,728,268
Group time trend No Yes No Municipality time trend No No Yes
Informal business owner dummy
Dependent variable:
Note : Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Impact on Informal Entrepreneurial Activity (cont.)
0.12
0.125
0.13
0.135
0.14
0.145
0.15
20002
20003
20004
20011
20012
20013
20014
20021
20022
20023
20024
20031
20032
20033
20034
20041
20042
20043
20044
Quarter
0.080.0810.0820.0830.0840.0850.0860.0870.0880.089
Municipalities without Azteca Municipalities with Azteca
Aver
age
Info
mal
Busi
nes
s D
um
my
Question 1:
Is the impact of the event on the proportion of informal business owners different for men and women?
Impact on Informal Entrepreneurial Activity by Gender
(1) (2) (3)WomenAzteca*Post Dec 2002 -0.0016 0.0033 0.0042
(0.0020) (0.0026) (0.0027)R-squared 0.031 0.019 0.032No. of observations 2,515,225 2,515,225 2,515,225
MenAzteca*Post Dec 2002 0.0158*** 0.0091* 0.0101**
(0.0053) (0.0051) (0.0047)R-squared 0.099 0.077 0.102No. of observations 2,213,043 2,213,043 2,213,043
Group time trend No Yes No Municipality time trend No No Yes
Informal business owner dummy
Dependent variable:
Note: Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Results (1), Informal Business Owners, by Gender
Informal business owners Higher proportion in municipalities
with Azteca after Azteca opened ONLY significant for men
Question 2:
Is the impact of the event on the proportion of formal business owners, wage-earners and not employed different for men and women?
Impact on Wage earners, by Gender
(1) (2) (3) (4) (5) (6)Panel A. Complete SampleAzteca*Post Dec 2002 -0.0042 0.0039 0.0034 0.0019 -0.0089*** -0.0098***
(0.0035) (0.0040) (0.0038) (0.0032) (0.0034) (0.0034)R-squared 0.140 0.136 0.141 0.230 0.226 0.230No. of observations 4,728,268 4,728,268 4,728,268 4,728,268 4,728,268 4,728,268
Panel B: WomenAzteca*Post Dec 2002 0.0033 0.0095** 0.0108** -0.0004 -0.0138** -0.0159***
(0.0043) (0.0044) (0.0045) (0.0052) (0.0054) (0.0054)R-squared 0.139 0.133 0.140 0.109 0.119No. of observations 2,515,225 2,515,225 2,515,225 2,515,225 2,515,225 2,515,225
Panel C: MenAzteca*Post Dec 2002 -0.0135*** -0.0030 -0.0055 0.0041 -0.0024 -0.0027
(0.0048) (0.0057) (0.0054) (0.0026) (0.0032) (0.0031)R-squared 0.075 0.065 0.076 0.089 0.083 0.0893No. of observations 2,213,043 2,213,043 2,213,043 2,213,043 2,213,043 2,213,043
Group time trend No Yes No No Yes No Municipality time trend No No Yes No No Yes Note: Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Dependent variable:Wage earner dummy Not Employed dummy
Results (2), Impact on Wage earners and Not Employed, by Gender
Formal business owners No difference (probably have access to other banks)
Wage-earners Positive impact on women only
Not employed Decreased, for women only
So far we find: More men run informal businesses, more
women as wage-earners, fewer women not employed
Question 3:
Is the Impact different for different categories of pre-event occupations for men and women? Informal Formal Wage-Earner Not Employed
Impacts by Pre-Event OccupationWomenPanel B: Women
Informal Formal Wage-earners Not employedPre-Event OccupationInformal 0.0371* -0.0007 -0.0016 -0.0347
(0.0217) (0.0113) (0.0169) (0.0215)
Formal -0.0317** -0.0149 0.0250 0.0216(0.0148) (0.0351) (0.0200) (0.0279)
Wage Earners -0.0056 0.0025 0.0051 -0.0019(0.0042) (0.0026) (0.0090) (0.0091)
Not Employed 0.0079** 0.0010 0.0067 -0.0157**(0.0036) (0.0017) (0.0053) (0.0068)
Dependent variable:
Note: Reported are coefficients on interaction term of Azteca* Post Dec 2002 estimated with municipality time trends. Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Impacts by Pre-Event OccupationMen
Table C: MenInformal Formal Wage-earners Not employed
Pre-Event OccupationInformal 0.0428** 0.0010 -0.0393*** -0.0043
(0.0177) (0.0107) (0.0150) (0.0058)
Formal 0.0113 -0.0319 0.0168 0.0035(0.0136) (0.0198) (0.0136) (0.0071)
Wage Earners 0.0083* 0.0004 -0.0048 -0.0039(0.0044) (0.0027) (0.0059) (0.0034)
Not Employed -0.0045 0.0107 0.0277 -0.0339*(0.0102) (0.0081) (0.0194) (0.0200)
Dependent variable:
Note: Reported are coefficients on interaction term of Azteca* Post Dec 2002 estimated with municipality time trends. Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Results (3), Impact by Pre-event Occupation, by Gender
For women: Owners of informal businesses are more likely to stay
informal Owners of formal businesses are less likely to transition
to being informal Not employed are less likely to stay not employed and
more likely to start informal business
For men: Owners of informal businesses are more likely to stay
informal and less likely to transition to wage earners Wage earners are more likely to start informal business Not employed are less likely to stay not employed
Question 4:
Are the results on income different for men and women?
Are the income impacts different by pre-event occupation?
Impacts on Income, by Gender
(1) (2) (3) (4) (5) (6)Panel A. Complete SampleAzteca*Post Dec 2002 -0.0283 0.0691** 0.0762*** -0.0155 0.0577** 0.0660***
(0.0240) (0.0286) (0.0275) (0.0242) (0.0269) (0.0255)R-squared 0.279 0.274 0.280 0.311 0.302 0.311No. of observations 4,533,848 4,533,848 4,533,848 4,533,848 4,533,848 4,533,848
Panel B: WomenAzteca*Post Dec 2002 -0.0063 0.0712* 0.0907** 0.0093 0.0550 0.0727**
(0.0327) (0.0389) (0.0388) (0.0295) (0.0351) (0.0350)R-squared 0.149 0.141 0.150 0.171 0.163 0.172No. of observations 2,452,291 2,452,291 2,452,291 2,452,291 2,452,291 2,452,291
Table C: MenAzteca*Post Dec 2002 -0.0538** 0.0541* 0.0483* -0.0451 0.0500 0.0479*
(0.0269) (0.0308) (0.0290) (0.0295) (0.0307) (0.0280)R-squared 0.139 0.125 0.140 0.185 0.159 0.186No. of observations 2,081,557 2,081,557 2,081,557 2,081,557 2,081,557 2,081,557
Group time trend No Yes No No Yes No Municipality time trend No No Yes No No Yes
Note: Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Log (1+ income) Fourth root of income Dependent variable:
Impact on Income by Pre-Event Occupation and Gender
Pre-Event Occupation Log (1+ income) Fourth root of income Panel A: Complete SampleInformal 0.0721 0.0639
(0.0648) (0.0638)Formal -0.0116 0.0681
(0.1143) (0.1255)Wage Earners -0.0028 -0.0092
(0.0451) (0.0431)Not Employed 0.0868* 0.0751*
(0.0492) (0.0444)Panel B: WomenInformal 0.1212 0.0828
(0.1536) (0.1312)Formal -0.1021 -0.0037
(0.2835) (0.2791)Wage Earners -0.0081 -0.0117
(0.0833) (0.0759)Not Employed 0.0892** 0.0735*
(0.0431) (0.0383)Table C: MenInformal 0.0449 0.0475
(0.0606) (0.0659)Formal 0.0041 0.0575
(0.0876) (0.1057)Wage Earners 0.0189 0.0055
(0.0438) (0.0466)Not Employed 0.1442 0.1491
(0.1544) (0.1426)
Dependent variable:
Note: Reported are coefficients on interaction term of Azteca* Post Dec 2002 estimated with municipality time trends. Standard errors in parentheses (clustered at municipality level). Regressions include quarter and municipality fixed effects, as well as individual level control variables. Individual level control variables are gender, age, marital status, and education dummies. Significance levels: * 10%, ** 5%, *** 1%
Results (4), Impact on Income
Income is higher in municipalities with Azteca after opening Significant for men and women Larger impact on women
Income is higher for previously not employed
Conclusions Increased availability of financial services to
low income individuals has a positive impact on economic activity
More informal businesses by men (because of decreased turnover), with more women as wage-earners
Overall less proportion of not employed, stronger for women
Higher income, especially in those previously not employed, stronger for women.
Low documentation loans support informal businesses, while also allowing for increased labor market participation of women and higher income for previously not employed.
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