Microfinance Banks and Household Access to Finance

The profits of the banks depending on their mutual decisions to enter a location arepresented in Table 1.Table 1. Profits of banksRetail Banknot enterenterMicrofinanceBanknot enter 0,0enter⎡⎣ + ⎤⎦ −3 40, nl δl δl πRB βRB2 3 4n ⎡l ⎣δ ,0l+ δl + δ ⎤l ⎦πMFB −βMFB 2 3 4n ⎣⎡δ + δ ⎦⎤π −β , n ⎣⎡δ ⎦⎤π −βl l l MFB MFB l l RB RBResults and empirical hypothesesAssuming a given income and cost structure of each bank type ( π , , , )MFBβMFB πRB βRBwederive the following results from equations [5, 6] and Table 1:(i) Branch network: Given the population size of a location n land the presence of a retailbank in the location the microfinance bank is more likely to open a branch when the2 3share of low and moderate wealth households ( δ + δ ) is higher. If a retail bank has4no branch in that location the share of high-wealth households δlalso influences thedecision of the microfinance bank. A higher share of very-low-income households( δ ) does not increase the propensity of the microfinance bank to open a branch as1lthese households do not demand accounts.(ii) Client structure: In any location where the microfinance bank and the retail bank have a2 3branch the former will serve low- and moderate wealth households ( l,l )4latter serves high-income households ( δl )llδ δ , while the. Comparing locations where only one of10