Competition helps improve access for unbanked households

Posted on September 30, 2014 by Sumita Kale

Evidence from the US shows that an increase in bank competition is associated with a large drop in the share of unbanked householdsThe effect is even stronger for populations that are more likely to be rationed by banks, such as black households living in "high racial bias statesThe improved access to bank accounts leads to higher savings rates but does not translate to higher levels of indebtedness (Claire Celerier  and Adrien Matray, Unbanked Households: Evidence of Supply-Side Factors  HEC Paris Research Paper NoFIN-2014-1039)

This result has important policy implications for IndiaWith the RBI going in for differentiated banking licenses as well as proposing licenses on tap, the impact on financial inclusion will be significantFurther, the fears in banking circles of increased indebtedness in low income housholds should be assuaged by this research.

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