Essays on Financial Inclusion and Banking in Colombia

Colombia is the institutional setup to test different hypotheses related to household finances during the pandemic, government subsidies' role, Fintech adoption determinants and interest rate regulation. The first two chapters are influenced by the disruption caused by the COVID-19 crisis. For both chapters, we are partnering with MOVii, the first and largest digital wallet in the local market, operating under the framework of the Financial Inclusion Law. MOVii was designated to distribute unconditional cash transfers (G2P) to the population affected by the containment measurements during the pandemic. Therefore, the first chapter uses administrative records, along with different measurements of lockdown stringency, confinement, and mobility, to study the effects of the COVID-19 pandemic and the G2P consumption smoothing policies in the short term on different household finance indicators. The nature of MOVii's client portfolio provides a natural experiment setup since it allows tracking recipients and non-recipients before and after the G2P implementation. We find a significant causal effect on overall spending and savings from the G2P program, although the analysis on different spending sub-categories displays heterogeneous results. Moreover, it calculates the marginal propensity to consume from these subsidies around 0.42, in line with recent literature. The second chapter investigates the determinants of mobile-money usage and the effect of providing cash transfers. We designed and conducted a survey experiment to collect demographic and financial information on a representative sample of MOVii's clients. The study design includes an experimental phase survey in which respondents are randomly assigned into three different groups, each providing different financial incentives. The information from the survey is merged then with administrative data on deposits, cash-in/cash-out, and other transactional information at the user level, allowing to study the causal effect of unconditional cash transfers on usage variables and self-reported information on prospective investment preferences and risk management strategies. We found that the newly included population has different saving and transactional profiles, as they are more prone to cash out their subsidies rather than use the digital wallet for their financial activities. To promote cash, providing users with debit cards proves to be a very efficient tool to facilitate technology adoption. Finally, the last chapter examines the interaction between interest rates caps, market power, and credit provision. We use the 2010 change in the calculation of the microcredit benchmark rate in a quasi-experimental framework. Using the consumer loans as the control group, we find that the flexibilization of the interest rate did not boost credit supply. Although banks with higher market power increased disbursements relatively after the treatment, banks with lower market banks changed their pricing strategy to overcome the previously binding interest rate cap. As observed, this doctoral dissertation focuses on financial agents, both incumbents and Fintechs, and their role in facilitating economic empowerment through credit, saving, and payment products. The public outreach of these results would enrich the policymaking process in Colombia.