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

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 their multiple stores. The retail-store banks are characterized by their vast geographical expansion and because their products target low-income households. In this study, I take advantage of the unique characteristics of the opening strategy of the first retail-store bank in Mexico (Azteca Bank) and the comprehensive panel data in the “Mexican Family Life Survey” (MxFLS) to estimate the impact of formal financial services expansion on the shape and use of the local safety net. In order to overcome potential doubts about the common time trend assumption among municipalities in the treatment and control group, this project carefully implements a Matching Di↵erence-in-Di↵erences empirical strategy. The main results can be summarized as follows: Expansion of formal financial services reduce the probability of participating in the local safety net among households with low per capita expenditure (PCE). Concretely, as a consequence of Azteca Bank entrance, the probability of receiving/giving transfers has decreased by at least 22% for these households. Moreover, I show that, as a consequence of the Azteca Bank entry, households in the low PCE group rely less on their local safety net to deal with idiosyncratic