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Challenges in Banking the Rural Poor

Challenges in Banking the Rural Poor

Evidence from Kenya’s Western Province

(p.63) 2 Challenges in Banking the Rural Poor
African Successes, Volume III
Pascaline DupasSarah GreenAnthony KeatsJonathan Robinson
University of Chicago Press

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. First, 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 people did not begin saving in their bank accounts because: (1) they do not trust the bank, (2) service is unreliable, and (3) withdrawal fees are prohibitively expensive. Secondly, we provided information on local credit options and lowered the eligibility requirements for an initial small loan. After 6 months, only 3% of people initiated the loan application process. Survey evidence suggests that people do not borrow so as not to risk losing their collateral. These results suggest that while expanding access to banking services may benefit a minority, broader inclusion may require changes in service quality. There are also challenges on the demand side.

Keywords:   savings, credit, trust, financial inclusion, village bank, poverty

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