Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?
Shawn Allen Cole
Harvard Business School
World Bank - Development Research Group (DECRG)
October 12, 2010
Journal of Finance, Forthcoming
Harvard Business School Finance Working Paper No. 09-117
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.
Number of Pages in PDF File: 122
Keywords: Banking and finance, financial institutions, field experiments, India, Indonesia, economic development, consumer finance, financial education
Date posted: April 9, 2009 ; Last revised: October 14, 2010