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Home | Events Archive | Rural Banks Can Reduce Poverty: Experimental Evidence from 870 Indian Villages
Seminar

Rural Banks Can Reduce Poverty: Experimental Evidence from 870 Indian Villages


  • Series
  • Speaker(s)
    Giorgia Barboni (University of Warwick, United Kingdom)
  • Field
    Finance, Finance
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Room T03-35
    Rotterdam
  • Date and time

    May 07, 2024
    11:45 - 13:00

Abstract
We evaluate an at-scale experiment that randomized branch placement by a private-sector bank across 870 South Indian villages. Within two years of branch opening, one in three households in treated villages had taken a formal loan and roughly a quarter had taken up an insurance or savings product. Reliance on more expensive informal loans fell -- we observe a 10% reduction in informal borrowing in treatment areas relative to control. Greater engagement with formal finance improved individual and aggregate well-being: Relative to control villages, poverty rates in treatment villages are 8% lower two years after bank opening. Alongside, occupational diversification and village economic activity rise: households in treated villages are 15% more likely to have a member working in non-agriculture self-employment, have 20% higher business income, and 6% higher wage income. The net effect of higher formal debt and lower poverty on women's mental health and wellbeing is positive: stress biomarkers fall significantly in treatment villages relative to control while women's control over resources improves significantly. Our evidence is consistent with a model of entrepreneurship in which access to cheaper formal credit increased village-wide labor demand and increases overall welfare