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Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?

122 Pages Posted: 9 Apr 2009 Last revised: 14 Oct 2010

Shawn Allen Cole

Harvard Business School

Thomas Sampson

Harvard University

Bilal Zia

World Bank - Development Research Group (DECRG)

Date Written: October 12, 2010

Abstract

Financial development is critical for growth, but its micro-determinants are not well understood. We test leading theories of low demand for financial services in emerging markets, combining novel survey evidence from Indonesia and India with a field experiment. We find a strong correlation between financial literacy and behavior. However, a financial education program has modest effects, increasing demand for bank accounts only for those with low levels of education or financial literacy. In contrast, small subsidies greatly increase demand. A follow-up survey confirms these findings, demonstrating the newly opened accounts remain open and in use two years after the intervention.

Keywords: Banking and finance, financial institutions, field experiments, India, Indonesia, economic development, consumer finance, financial education

Suggested Citation

Cole, Shawn Allen and Sampson, Thomas and Zia, Bilal, Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets? (October 12, 2010). Journal of Finance, Forthcoming; Harvard Business School Finance Working Paper No. 09-117. Available at SSRN: https://ssrn.com/abstract=1374078

Shawn Allen Cole (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Thomas Sampson

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Bilal Zia

World Bank - Development Research Group (DECRG) ( email )

MC3-445
1818 H Street, N.W.
Washington, DC 20433

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