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

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.

Dupas and Robinson (2012)


Rural.RCT.Provided safe place (metal box) to save money with randomly varying levels of commitment to save.Preventive health investments increased by 68%. The share of households achieving their savings goals increased by 13% (compared to 34% in the control group). Three years later 39% of those who received metal boxes were still using them for saving. Larger effects found among married than among unmarried females. The results also suggest that savings programs that do not restrict liquidity are most effective.771 Members of 113 rotating savings clubs (ROSCAs) in one administrative division of western Kenya.