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

TLDR

Access to finance influences poverty largely through its impact on labor market participation. The study examines how improved access to finance affects poverty levels. The authors use the simultaneous opening of over 800 Banco Azteca branches in existing Elektra stores—a natural experiment targeting low‑income clients—to assess the effect of finance access. They find that access to finance significantly boosts labor market activity and income, particularly for low‑income households and in regions with low prior bank presence.

Abstract

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.