Do Rural Banks Matter? Evidence from the Indian Social Banking Experiment.

This article tests whether a large state-led bank branch expansion program was associated with poverty reduction in India. The program is the largest branch expansion program undertaken by any single country. After bank nationalization in 1969, the Indian government launched an ambitious social banking program which sought to improve the access of the rural poor to formal credit and saving opportunities. Between 1969 and 1990, bank branches were opened in roughly 30,000 rural locations with no prior formal credit and savings institutions (unbanked locations). An integral element of this program was branch expansion into rural unbanked locations. The paper's main finding is that branch expansion into rural unbanked locations in India significantly reduced rural poverty.