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

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  • Robin Burgess
  • Rohini Pande

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.

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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers with number 40.

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Date of creation: Aug 2003
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Handle: RePEc:cep:stidep:40

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: Finance and development; rural banking; bank licensing; credit constraints; structural change; diversification; redistribution; povery; growth.;

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  1. Why microsavings might be better
    by Dweep Chanana in The Discomfort Zone on 2010-01-14 16:30:54
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