Microfinance Banks and Household Access to Finance

We examine how the expansion of the branch network of a microfinance bank between 2006 and 2010 in South-East Europe has affected the use of bank accounts by households in the region. Our analysis is based on survey data reporting the use of bank accounts, socioeconomic characteristics and geographic location of 8,000 households in four countries. We geocode the location of each household and match this data with branch location information for the major microfinance bank in the region, ProCredit Bank, as well as for a large retail bank in each country. We report three key results: First, in locations where ProCredit opened a new branch between 2006 and 2010 the share of households with a bank account increased more than in locations where it did not open a new branch. Second, a new ProCredit branch leads to a stronger increase in the use of bank accounts among low- and middle-income households than among high-income households. Third, we find that ProCredit not only opens branches in areas with high economic activity, but also in areas where average household incomes are low. Overall our results suggest that microfinance banks do expand the frontier of finance as compared to ordinary retail banks.