London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

Abstract for:

Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment

Robin Burgess, Rohini Pande, August 2003
Paper No' DEDPS 40: | Full paper (pdf)
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Keywords: Finance and development; rural banking; bank licensing; credit constraints; structural change; diversification; redistribution; povery; growth.

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Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Development Economics
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Abstract:

Lack of access to finance is often cited as a key reason why poor people remain poor. This paper uses data on the Indian rural branch expansion program to provide empirial evidence on this issue. Between 1977 and 1990, the Indian Central Bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches. We show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in Indian states with lower initial financial development. The reverse is true outside this period. We exploit this fact to identify the impact of opening a rural bank on poverty and output. Our estimates suggest that the Indian rural branch expansion program significantly lowered rural poverty, and increased non-agricultural output.