Improving Access to Banking: Evidence from Kenya

Abstract

Using household surveys and bank penetration data at the district-level in 2006 and 2009, we explore the impact of Equity Bank — a leading private commercial bank focusing on microfinance on the access to banking in Kenya. Equity Bank pursues distinct branching and business strategies that target underserved areas and less privileged households, unlike other commercial banks in Kenya. Equity Bank presence has a positive and significant impact on households’ use of bank accounts and bank credit, especially for Kenyans with low income, no salaried job and less education, and those that do not own their own home. The findings are robust to using the district-level proportion of people speaking a minority language as an instrument for Equity Bank presence. We conclude that Equity Bank’s business model — providing financial services to population segments typically ignored by traditional commercial banks and generating sustainable profits in the process — can be a solution to the financial access problem that has hindered the development of inclusive financial sectors in many African countries.

Keywords: Equity Bank, bank penetration, bank account, minority language, microfinance

JEL Classification: G2, O1, R2