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Do rural banks matter? evidence from the Indian social banking experiment

  • Robin Burgess
  • Rohini Pande

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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File URL: http://eprints.lse.ac.uk/2244/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 2244.

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Length: 51 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:ehl:lserod:2244
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  30. repec:fth:wobaco:1083 is not listed on IDEAS
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