53% of formal MFI accounts, however, charged a “social participation fee”. The median value of this fee is 500 pesos, but most households could not state fee amounts, and since larger fee amounts are more likely to be recalled, it is likely that the nonresponse has biased the estimated fee upwards. In comparison to these fees and to median balances, the median initial deposits were 1000 pesos in banks and 200 pesos in formal MFIs, suggesting that minimum deposit requirements, if any, are trivial.

# **6   How much of the banking status does income explain?**

It is widely argued that low income households are too poor to save and to have an account in a financial institution. However, our data suggest that while the level of assets does affect the decision to bank, too much weight has been put on poverty as an explanation for the low usage of bank accounts. First, as shown in savings accounts section, most banks and MFIs do not charge annual fees. Table 7, moreover, shows that the median formal MFI receives only 12 deposits and 2 withdrawals in a year, and our data also indicate (not shown in table) that the average cost per trip to a financial institution is less than two hundredths of 1% of median annual household expenditure, while the average time per round-trip is only about 30 minutes. Second, as we show below, there are many households in the BANSEFI survey that have the same level of income and assets but differ in their banking status.

The distribution and density of consumption per capita for banked and unbanked households are not very different, except at the right tails (Figure 1). This does not rule out the possibility that while across localities, the variation in banking status depends on the existence or non-existence of branches, _within_ any given locality, it is still driven by income. But the same pattern emerges if we remove the locality specific means of income before plotting its distributions, indicating that within-locality differences in income too are minimal. However, there _is_ substantial variation of banking status even within localities, and the regressions that we present below will confirm this.

We use a linear probability model to estimate the importance of some determinants of the ownership of a bank/MFI account, reporting the estimates in Table 8. The explanatory variables include per capita consumption expenditure and assets, sex, occupation and education of the household head, cash kept at home and the number of adults.

In none of the regressions can income, as measured by per capita consumption expenditure, account for more than 3% of the variance in the decision to have a bank account. Although statistically significant, the increase in the probability of having an account is small: having 1,000 US dollars more of consumption per capita per year (about two-thirds of a standard deviation) increases the probability of having an account by at most 5 points (Column 1), relative to a mean of 54.

Controlling for income, the level of assets has a small but statistically significant correlation with having an account: an increase in one standard deviation of US$13,000 is associated with a 2.5 points higher likelihood of having an account (Column 2). In Column 2, we also consider cash at home, since it may be that for the same level of income and assets, the amount of cash to deposit varies greatly across households, and households with little cash decide to keep it home.8 The trade-off between keeping cash 8 The median household claims to have no cash at home, while the mean is 292 pesos, with a standard deviation of 1,575 pesos.