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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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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: Forthcoming: Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province , Pascaline Dupas, Sarah Green, Anthony Keats, Jonathan Robinson. in African Successes: Modernization and Development , Edwards, Johnson, and Weil. 2014
Handle: RePEc:nbr:nberwo:17851

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  1. Isaac Mbiti & David N. Weil, 2011. "Mobile Banking: The Impact of M-Pesa in Kenya," Working Papers 2011-13, Brown University, Department of Economics.
  2. Pascaline Dupas & Jonathan Robinson, 2011. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," NBER Working Papers 17255, National Bureau of Economic Research, Inc.
  3. Kendall, Jake & Mylenko, Nataliya & Ponce, Alejandro, 2010. "Measuring financial access around the world," Policy Research Working Paper Series 5253, The World Bank.
  4. Dean Karlan & Margaret McConnell & Sendhil Mullainathan & Jonathan Zinman, 2010. "Getting to the Top of Mind: How Reminders Increase Saving," NBER Working Papers 16205, National Bureau of Economic Research, Inc.
  5. Demirguc-Kunt, Asli & Karacaovali, Baybars & Laeven, Luc, 2005. "Deposit insurance around the world : a comprehensive database," Policy Research Working Paper Series 3628, The World Bank.
  6. Marcel Fafchamps & Simon Quinn & David McKenzie and Christopher Woodruff, 2011. "When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana," Economics Series Working Papers WPS/2011-11, University of Oxford, Department of Economics.
  7. William Jack & Tavneet Suri, 2011. "Mobile Money: The Economics of M-PESA," NBER Working Papers 16721, National Bureau of Economic Research, Inc.
  8. Dean Karlan & Jonathan Zinman, 2007. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Working Papers, Center for Global Development 108, Center for Global Development.
  9. 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, American Economic Association, vol. 5(1), pages 163-92, January.
  10. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2007. "Returns to capital in microenterprises : evidence from a field experiment," Policy Research Working Paper Series 4230, The World Bank.
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  12. Nava Ashraf, 2009. "Spousal Control and Intra-household Decision Making: An Experimental Study in the Philippines," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1245-77, September.
  13. Christoph Kneiding & Richard Rosenberg, 2008. "Variations in Microcredit Interest Rates," World Bank Other Operational Studies 9510, The World Bank.
  14. 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.
  15. Jonathan Robinson & Ethan Yeh, 2011. "Transactional Sex as a Response to Risk in Western Kenya," American Economic Journal: Applied Economics, American Economic Association, American Economic Association, vol. 3(1), pages 35-64, January.
  16. Esther Duflo & Michael Kremer & Jonathan Robinson, 2009. "Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya," NBER Working Papers 15131, National Bureau of Economic Research, Inc.
  17. Ferreira, Francisco H. G. & Schady, Norbert, 2008. "Aggregate economic shocks, child schooling and child health," Policy Research Working Paper Series 4701, The World Bank.
  18. Christopher Udry & Santosh Anagol, 2006. "The Return to Capital in Ghana," Working Papers, Economic Growth Center, Yale University 932, Economic Growth Center, Yale University.
  19. Franklin Allen & Elena Carletti & Robert Cull & Jun “Qj” Qian & Lemma Senbet & Patricio Valenzuela, 2013. "Improving Access to Banking: Evidence from Kenya," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 298, Centro de Economía Aplicada, Universidad de Chile.
  20. 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.
  21. Abhijit V. Banerjee & Esther Duflo, 2007. "The Economic Lives of the Poor," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(1), pages 141-168, Winter.
  22. Nava Ashraf & Dean S. Karlan & Wesley Yin, 2005. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," Working Papers, Economic Growth Center, Yale University 917, Economic Growth Center, Yale University.
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Cited by:
  1. Aggarwal, Shilpa & Klapper, Leora & Singer, Dorothe, 2012. "Financing businesses in Africa : the role of microfinance," Policy Research Working Paper Series 5975, The World Bank.
  2. 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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