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Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province

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  • Pascaline Dupas
  • Sarah Green
  • Anthony Keats
  • Jonathan Robinson

Abstract

Most people in rural Africa do not have bank accounts. In this paper, we combine experimental and survey evidence from Western Kenya to document some of the supply and demand factors behind such low levels of financial inclusion. Our experiment had two parts. In the first part, we waived the fixed cost of opening a basic savings account at a local bank for a random subset of individuals who were initially unbanked. While 63% of people opened an account, only 18% actively used it. Survey evidence suggests that the main reasons people did not begin saving in their bank accounts are that: (1) they do not trust the bank, (2) service is unreliable, and (3) withdrawal fees are prohibitively expensive. In the second part of the experiment, we provided information on local credit options and lowered the eligibility requirements for an initial small loan. Within the following 6 months, only 3% of people initiated the loan application process. Survey evidence suggests that people do not borrow because they do not want to risk losing their collateral. These results suggest that, while simply expanding access to banking services (for instance by lowering account opening fees) will benefit a minority, broader success may be unobtainable unless the quality of services is simultaneously improved. There are also challenges on the demand side, however. More work needs to be done to understand what savings and credit products are best suited for the majority of rural households.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17851.

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Date of creation: Feb 2012
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Publication status: published as Pascaline Dupas, Anthony Keats, Sarah Green, Jonathan Robinson. "Supply and Demand Challenges in Banking the Rural Poor: Evidence from Kenya," in David N. Weil, Sebastian Edwards, and Simon Johnson, editors, "African Successes #1" (2014)
Handle: RePEc:nbr:nberwo:17851

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References

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  1. Dean Karlan & Margaret McConnell & Sendhil Mullainathan & Jonathan Zinman, 2010. "Getting to the Top of Mind: How Reminders Increase Saving," Working Papers 988, Economic Growth Center, Yale University.
  2. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," IZA Discussion Papers 2934, Institute for the Study of Labor (IZA).
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  4. Fafchamps, Marcel; McKenzie; Quinn, Simon; Woodruff, Christopher, 2011. "When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana," CAGE Online Working Paper Series 50, Competitive Advantage in the Global Economy (CAGE).
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  7. Franklin Allen & Elena Carletti & Robert Cull & Jun “Qj” Qian & Lemma Senbet & Patricio Valenzuela, 2013. "Improving Access to Banking: Evidence from Kenya," Documentos de Trabajo 298, Centro de Economía Aplicada, Universidad de Chile.
  8. Felipe Kast & Stephan Meier & Dina Pomeranz, 2012. "Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device," NBER Working Papers 18417, National Bureau of Economic Research, Inc.
  9. Dean Karlan & Jonathan Zinman, 2006. "Expanding credit access: Using randomized supply decisions to estimate the impacts," Natural Field Experiments 00281, The Field Experiments Website.
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  12. Pascaline Dupas & Jonathan Robinson, 2013. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 163-92, January.
  13. Christoph Kneiding & Richard Rosenberg, 2008. "Variations in Microcredit Interest Rates," World Bank Other Operational Studies 9510, The World Bank.
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  18. Ruiz, Claudia, 2013. "From pawn shops to banks : the impact of formal credit on informal households," Policy Research Working Paper Series 6634, The World Bank.
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Cited by:
  1. Ruiz, Claudia, 2013. "From pawn shops to banks : the impact of formal credit on informal households," Policy Research Working Paper Series 6634, The World Bank.
  2. Aggarwal, Shilpa & Klapper, Leora & Singer, Dorothe, 2012. "Financing businesses in Africa : the role of microfinance," Policy Research Working Paper Series 5975, The World Bank.

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