Access To Formal Banking Services Raises The Incomes of the Poor

Written by Patrick Fisher May 9, 2012 0 comment

Feb 2012, Pande, R., Cole, S., Sivasankaran, A., Bastian, G., & Durlacher, K.

Examining the impact of access of formal financial services on poverty alleviation

This report examines the impact of access to formal banking services on poor people’s income. It analyzes whether providing access to financial services can lift the poor out of the poverty cycle. It states that inability to access financial services prevents poor people’s consumption smoothing and investments in health, education and income generating activities. Formal banking services may be able to reduce or remove market imperfections and facilitate financial inclusion of the poor, ultimately leading to higher incomes.

The report finds that offering new savings products can increase income by allowing households to accumulate assets. Findings include:

  • Improving banking technology has the potential to increase income by allowing households to smooth consumption and accumulate savings;
  • State-led expansion of the banking sector in rural areas can reduce rural poverty, increase rural wages and increase agricultural investment;
  • Access to credit is associated with higher agricultural incomes and increased and/or smoother consumption for rural farming populations;
  • Supply and demand constraints may limit the ability of formal banking services to achieve growth.