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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 for why poor people remain poor. This Paper uses data on the Indian rural branch expansion programme to provide empirical evidence on this issue. Between 1977 and 1990, the Indian central bank mandated that a commercial bank could 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 was 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 programme significantly lowered rural poverty, and increased non-agricultural output.
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Suggested Citation

  • Robin Burgess & Rohini Pande, 2005. "Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment," American Economic Review, American Economic Association, vol. 95(3), pages 780-795, June.
  • Handle: RePEc:aea:aecrev:v:95:y:2005:i:3:p:780-795
    Note: DOI: 10.1257/0002828054201242
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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