Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province

42 Pages Posted: 20 Feb 2012 Last revised: 4 Nov 2013

See all articles by Pascaline Dupas

Pascaline Dupas

Stanford University

Sarah Green

Innovations for Poverty Action

Anthony Keats

Wesleyan University

Jonathan Robinson

University of California, Santa Cruz

Date Written: February 2012

Abstract

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. In the first part, 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 that the main reasons people did not begin saving in their bank accounts are that: (1) they do not trust the bank, (2) service is unreliable, and (3) withdrawal fees are prohibitively expensive. In the second part of the experiment, we provided information on local credit options and lowered the eligibility requirements for an initial small loan. Within the following 6 months, only 3% of people initiated the loan application process. Survey evidence suggests that people do not borrow because they do not want to risk losing their collateral. These results suggest that, while simply expanding access to banking services (for instance by lowering account opening fees) will benefit a minority, broader success may be unobtainable unless the quality of services is simultaneously improved. There are also challenges on the demand side, however. More work needs to be done to understand what savings and credit products are best suited for the majority of rural households.

Suggested Citation

Dupas, Pascaline and Green, Sarah and Keats, Anthony and Robinson, Jonathan, Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province (February 2012). NBER Working Paper No. w17851. Available at SSRN: https://ssrn.com/abstract=2007844

Pascaline Dupas (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Sarah Green

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Anthony Keats

Wesleyan University ( email )

Jonathan Robinson

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

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