Background - Inability to access financial services prevents
consumption smoothing and investments in health, education and income
generating activities, thus limiting growth opportunities for the poor.
So, providing access to financial services has significant potential to
help lift the poor out of the cycle of poverty.
Formal banking services, by exploiting economies of scale and/or making
judicious use of targeted subsidies, may be able to reduce or remove
market imperfections and facilitate financial inclusion of the poor,
ultimately leading to higher incomes. However, supply and demand
constraints may limit the ability of formal banking services to achieve
Results - Innovative design of new savings products that increase the
supply of savings and increase demand for savings by helping people
address behavioral challenges were found to increase income at least in
the short run. Improving banking technology by using mobile phones to
facilitate remittances, transfers and payments, and enable savings, was
found to have the potential to increase income by allowing households to
smooth consumption and accumulate assets.
State-led expansion of the banking sector in rural areas was found to
increase the supply of banking services, which in turn was found to
reduce rural poverty, increase rural wages and increase agricultural
investment. Access to credit could increase household income by
increasing consumption and/or smoothing consumption. Further, it could
raise agricultural incomes by allowing farmers to purchase better and
more optimal levels of inputs, leading to higher outputs and income.
Moreover, an individual’s access to credit could also increase incomes
of members in the individual’s social network.
Conclusions - The review finds that offering new savings products can
increase income by allowing households to accumulate assets. 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.
In terms of research implications, the review produced no evidence on
financial literacy programs combined with formal banking services and
technologies like debit cards. In terms of policy, the review finds that
innovations in savings products and improvements in banking technology
may be particularly effective. The review also finds that farmer’s
credit constraints are an important bottleneck in expanding agricultural
output, and interventions that ease these constraints may be effective
in reducing rural poverty and increasing agricultural production.
There is a protocol for this systematic review
Pande, R.; Cole, S.; Sivasankaran, A.; Bastian, G.; Durlacher, K. Does poor people’s access to formal banking services raise their incomes? EPPI-Centre, Social Science Research Unit, Institute of Education, University of London, London, UK (2012) 102 pp. ISBN 978-1-907345-26-5