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NORGLOBAL-Norge - Global partner

India: Savings Behaviour and the Introduction of Mobile Banking in India

Tildelt: kr 4,0 mill.

The primary objective of the project is to contribute to the understanding and improvement of financial inclusion policies and public benefit disbursements. We use the introduction of mobile banking in India to: - investigate the behavioral and social barriers to savings - evaluate how mobile accounts can help to improve the use of public benefits - study the impact of mobile banking on economic and social outcomes We started in July 2013 by interviewing bankers, customers and non-customers of the new banking solution. And in October, we started surveying random households in 18 villages of Chhattisgarh. So far, we are confirming the pattern that many accounts are "dormant". They have been opened but they are not used. We suspect that a lack of clear information to potential users is hurting the diffusion of the new accounts. It is worrisome for instance that several customers are not even aware that they can deposit savings on their accounts. Many of them simply opened an account because they were asked to do so, but do not use it. By randomly extending access to bank accounts, to unbanked villagers, we have confirmed that simply getting a bank account does not increase people's overall savings. They start saving on the bank account, but they reduce their savings in other assets by a similar amount. Using an experimental setting that mimics the cash and digital payments of public disbursements, we further find that account use is importantly shaped by behavioral biases, procrastination and inertia in particular. As we show in our first paper, switching away from cash payments and towards account-based public payments will have a dramatic effect on household's finances. According to our estimates, this policy has the potential to double individual savings levels. Another important finding is about the relationship between the villagers and the new local bankers. We find that bank account use is strongly related to the trust between the clients and the local banker. And furthermore, that trust levels are very difficult to change. This has implications for the design of financial inclusion policies (about the density of the agents' network and the availability of automated machines in particular). We finally find suggestive evidence of the crowding out of informal savings groups following the introduction of formal banking.

In India, a significant proportion of the households, especially in rural areas, are outside the coverage of the formal banking system. The government of India recognises the importance of access to formal banking and wants the benefits from welfare schem es and from the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to be transferred directly on people's accounts. The first step is of course to provide bank account to the people. Our partner Basix is one of the pioneers in introducing mo bile banking in India and already reaches more than 3.5 million people. Together with Basix, we will introduce bank accounts in randomly selected areas and delay entry in control areas. This randomized control trial, together with the collection of panel data, offers a unique opportunity to address two major gaps in research on the financial lives of the poor. First, it allows evaluating the effects of a specific anti-corruption action on the distribution of benefits from welfare schemes and on the respo nse of the beneficiaries. It also allows a study of the interactions between new, formal, and existing informal financial arrangements. In addition to tackling these gaps in current scientific knowledge, the project will bring answers to important politic al demands. The Government of India needs reliable evidence on how to better disburse the benefits from public schemes.

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NORGLOBAL-Norge - Global partner