Financial Intermediation in Emerging Economies
Saturday, Jan. 4, 2020 2:30 PM - 4:30 PM (PDT)
- Chair: Sergio Schmukler, World Bank
Drug Money and Bank Lending: The Unintended Consequences of Anti-Money Laundering Policies
AbstractThis paper documents a hidden cost of anti-money laundering policies. We show that a policy implemented in Colombia reduced bank deposits in high intensity drug trafficking areas, causing banks that source deposits from these areas to cut lending in other areas, negatively impacting employment and number of
firms. Additionally, using a proprietary database on bank-firm relationships, we show that small firms that rely on affected banks experience a negative shock to sales, investment, and profitability. Last, we use night lights data to show that these results are not due to a reallocation of activity across firms or to a move to the informal economy.
How Debit Cards Enable the Poor to Save More
AbstractWe study an at-scale natural experiment in which debit cards are given to cash transfer recipients who already have a bank account. Using administrative account data and household surveys, we find that beneficiaries accumulate a savings stock equal to 2 percent of annual income after two years with the card. The increase in formal savings represents an increase in overall savings, financed by a reduction in current consumption. There are two mechanisms: first, debit cards reduce transaction costs of accessing money; second, they reduce monitoring costs, leading beneficiaries to check their account balances frequently and build trust in the bank.
Financial Access Under the Microscope
AbstractWe examine the impact of a large-scale microcredit expansion program on financial access and
the transition of previously-unbanked borrowers to commercial banks. Using administrative data
on the universe of loans from a credit register accessible to all lenders, we show that the program
improved access to credit, especially in underdeveloped areas, with positive effects on business
and mortgage lending. The program also generated positive spillovers to the commercial banking
sector. As the newly-created microfinance institutions (MFIs) faced lending constraints, a sizable
share of first-time borrowers obtained subsequent loans—that were larger, cheaper, and longer-term—from commercial banks, which expanded their branch network in under-served low-risk
areas. The individuals switching from MFIs to banks were less risky than non-switchers and not
riskier than existing bank borrowers. Overall, our results suggest that the microfinance sector,
coupled with a credit reference bureau, can mitigate information frictions in credit markets and
serves as a pathway for first-time borrowers to commercial banks.
- G2 - Financial Institutions and Services
- F3 - International Finance