India’s policy to push rural banking lowered poverty

It is getting tough to write or cover research papers in detail because of the time constraint. So, I will just be pointing to the interesting research papers I have read till I can get some time to get back to detailed writing.

I came across this paperby Rohini Pande which shows how the policies to push rural banking between 1977 and 1990 led to lower poverty in rural areas.

We exploit the introduction and removal of a nation-wide bank branch licensing rule which sought to increase and equalize bank branch presence across Indian states to estimate the e¤ect of rural bank openings on poverty. Between 1977 and 1990, to qualify for a license to open a branch in a census location which already had one or more bank branches an Indian bank had to open four branches in locations with no bank branches. This policy caused banks to open relatively more rural branches in Indian states with lower initial .nancial development between 1977 and 1990. The reverse was true outside this period. We use these policy-induced trend reversals in the relationship between a state’s initial financial development and rural branch expansion as instruments for rural branch expansion and that rural branch expansion in India significantly reduced rural poverty.

This paper is a must read for all those constant Indian policy critics who believe Indian policies have done all things wrong. And that too it shows the rural bank push was beneficial when most believe it was detrimental. It will be interesting to get a paper criticising this paper as well.