accounts. In addition, Bansefi has created a network which electronically links its branches with a subset of the _Cajas_ . This network is growing and as of late 2007 contained 1,432 branches, constituting the third largest banking network in the country, the leader in terms of the number of municipalities (710) in which it has a presence.

Nevertheless, despite the _Cajas_ , the problem of lack of physical access to banking services remains acute: 43% of municipalities in Mexico have no commercial bank, Bansefi, or registered MFI branch. There is however reason to be optimistic, since recently two “niche” banks with 2,536 branches covering 17% of municipalities, Banco Azteca and Compartamos, have been profitable in lending to low income households. As a result the biggest banks in Mexico, Banamex and Bancomer, are planning to enter this market.

# **2.2  Our data**

Our data set comes from a survey of banked and unbanked households conducted by BANSEFI and the Mexican Ministry of Agriculture. It consists of two parts: the first is a representative survey of the households of clients of the _Cajas_ , while the second part includes unbanked households, defined as households who do not have a bank account at any bank-type institution. The survey is intended to ultimately build a panel of households interviewed each year between 2004 and 2008. In this study we focus almost exclusively on the 2005 round of the survey.

The sample was drawn from every part of Mexico. The “treatment” sample (that is, the sample of banked households) was selected through a stratified, two-stage sample design. First, branches were stratified according to geographical region (North, Center, and South) and number of clients (very small, small, medium, and large), and then selected from within each strata with probability proportional to the number of clients. Finally, about thirty clients’ households were interviewed in every _Caja_ . We take into account the stratification and the clustering where appropriate in the analysis that follows.

The “control” (that is, unbanked) sample was obtained in a less standard manner. For every branch selected, the surveying team attempted to interview about thirty households that lived nearby and did not have bank account. Therefore, the control sample is representative of unbanked households that live near a household with an account in a _Caja_ , and should not be be seen as a representative sample of all unbanked households in Mexico.

The original 2004 sample contains 2,975 treatment and 2,793 control households. For the 2005 round, Bansefi decided to add some new financial institutions to the sample, after making room by dropping six of the original _Cajas_ . Due to these changes and natural attrition in the population, the sample size was smaller in 2005. In analyzing the data we found that some treatment households did not have financial accounts even in 2004, and some either opened a first account or closed all accounts between 2004 and 2005. So we reclassified the treatment status of each household according to whether or not they had had an open account in a formal financial institution in the twelve months leading up to the 2005 survey. About 12% of the observations were thus reclassified, leaving us with a base sample of 2,583 treatment and 2,182 control observations.

The questionnaire includes detailed information on demographic characteristics, expenditures, income, assets, liabilities, and use of formal and informal financial services. The sample includes urban and rural households, and detailed information on agricultural