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2 km (1.2 miles); 41 percent of the population does not have a bank account; and available credit in rural areas meets just 10 percent of the actual need. Microfinance established a foothold in India during the 1990s, but this decade has seen rapid growth, with a distinct shift away from a “welfare” model toward a “business model” for delivering these services.Since it is quite expensive for HSBC in India to provide services directly to the rural poor, it lends funds to microfinance intermediaries, the MFIs that further on-lend the funds to the ultimate clients. HSBC in India established a team for microfinance under its Commercial Banking division in December 2007 and plans to eventually create regional-level teams to facilitate initiatives in their respective parts of the country.

4.1.2 North America Market Entry

HSBC's initial motivation for its acquiring retail banks in North America and the UK was to diversify away from its home in Asia. After it acquired Marine Midland Bank and Midland Bank, HSBC's motivation may have changed subtly. It is becoming increasingly difficult for banks that are large relative to their home markets to grow at home. In many developed countries banking has become quite concentrated (Marquez and Molyneux, 2002). In response, policymakers in these countries have started to bar the banks from further domestic mergers and acquisitions. Some recent failed attempts in Canada are a case in point (Tickell, 2000). The only remaining possibility for growth then is cross-border. Interestingly, each of the owners of the largest subsidiaries of foreign banks in the US is disproportionately often the largest bank in its own home country (Tschoegl, 2002 and 2004). Assessing the viability of this strategy is the classic question of how a foreign firm competes against local firms that do not face any liability of foreignness (Zaheer, 1995), that is, costs that come from operating in a

foreign environment or at a distance. One issue then is whether having operations in contiguous countries represents a competitive advantage. Tschoegl (1987) and Dufey and Yeung (1993) have argued that where markets are well developed and competitive, there is no reason to expect foreign banks in general to be better than local banks at retail banking. At the same time there is evidence for the existence of a liability of foreignness vis-à-vis the foreign banks' host-country competitors

(Parkhe and Miller, 2002). Of course, there is also evidence that suggests that the liability is minimal (Nachum, 2003) or wanes over time (Zaheer and Moskowitz, 1996). However, these last two studies examine the liability in the context of corporate and wholesale banking markets. The liability may be more salient in the retail markets, where national differences between the home and host market are likely to be more profound.Demirgü?-Kunt and Huizinga (1999) and Claessens et al. (2001) found that foreign banks tend to have higher margins and profits than domestic banks in developing countries, but that the opposite holds in industrial countries. Similarly, Dopico and Wilcox (2002) found that foreign banks have a greater share in under-banked markets and a smaller presence in mature markets. The implication is that one should not expect much in the way of cross-border mergers in commercial banking within developed regions. We can speculate that on the production side, differences in products
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