Microfinance Banks and Household Access to Finance

When deciding on whether to open a bank account, and at which bank to do so, householdsweigh the anticipated benefits of opening the account against the fixed cost of opening anaccount. As the household anticipates that it will deposit all assets in the bank account thecondition for earning a positive return from a bank account is given byR ⋅A ≥ ϕ , orj i j[3] Aiϕj≥RjCondition [3] denotes the minimum level of assets required for a household i to yield apositive return from opening a bank account at bank j. We assume in the following that thethreshold of assets required to benefit from a retail bank account is higher than that required ata microfinance bank:ϕR[4]MFB RBMFBϕ R2,R1,or havevery low asset levels:AiϕRMFB< . Type 2 households only open an account at theMFBmicrofinance bank. These are households which have low transaction costs ci= 0and lowϕRB ϕMFBasset levels: > Ai≥ . Type 3 households will open an account at both banks, butR RRBMFBprefer the microfinance bank. These are households which have low transaction costs ci= 0and moderate asset levels:Aiϕ≥RRBRBϕ,RMFBMFBA