Case study

Financial services for the poor: India


By Bill and Melinda Gates

Poverty is not just the lack of money. It’s also the lack of access to basic financial services that help the poor use what money they have to improve their lives.

So the development community has been trying to promote financial inclusion—that is, to connect almost 2 billion people who live completely outside the formal financial system to bank accounts and services like credit and insurance. The problem is, it’s been too expensive to do at any kind of scale.

Until now. With mobile phones, it’s orders of magnitude easier and cheaper to reach the poor with financial services. The number of people with accounts is going up quickly, and we’re starting to see the impact. In particular, there’s exciting new evidence that digital financial services like payments and savings do indeed help people lift themselves out of poverty.

India has been especially innovative about investing in the building blocks of digital financial inclusion. Aadhaar, a nationwide biometric identification system, makes it simpler and more secure for poor people to do business with banks. India’s regulators have implemented new rules that give financial institutions greater flexibility to provide a wider variety of services. For example, a new class of banks called payment banks has brought in new private-sector players to the market and opened millions of new accounts. In 2014, the government launched a program called PMJDY to help the poor open accounts in huge numbers, and it recently started providing benefits to them through these accounts.

One of the development community’s hypotheses has been that inclusion could be especially revolutionary for women, who traditionally have been excluded from making economic decisions. Now, researchers are starting to test it. Last year, a study 
in Kenya by Tavneet Suri and William Jack established a clear link between financial inclusion and women’s empowerment. This year, Rohini Pande and her colleagues added to the evidence base with fascinating results. Melinda talked to Dr. Pande about her research, what financial inclusion can do for Indians and India, and how to speed up progress.

Impact when Indian women receive wages directly into their own accounts
Annual Earnings
Control group
13,479 INR
Treatment group
16,766 INR
Purchases from own income
Control group
Treatment group

In conversation

Melinda Gates

Co-chair, Bill & Melinda Gates Foundation

Rohini Pande

Mohammed Kamal Professor of Public Policy, Harvard Kennedy School

Melinda: What problem is your research on financial inclusion for Indian women trying to solve?

Rohini: As India has gotten richer, women have actually been working less in the formal labor force. That’s a problem for women, because when they don’t work they have less power in the household and, usually, less of a chance to live lives as fulfilling as they want. It’s also a problem for India, which fails to benefit from the talents of many women who want to work.

Melinda: Why are India’s women working less?

Rohini: One important reason—and one that our research focuses on—is social norms that block women’s mobility. Many Indian women need to ask permission just to leave the house. Working outside the home can be seen as shameful. These norms aren’t just imposed on women. In some places, men are considered bad providers if their wives work. We wanted to know whether connecting women to the financial system would help them transgress these norms. And perhaps, over time, even start to change them.

Melinda: How did you test your theory?

Rohini: The Government of India guarantees every rural household 100 days of work. This is an income security program, sometimes called workfare. Households can split up who does the work however they want, but historically the wages have been paid to the head of household, not the actual worker. So, usually, it’s men keeping most of the money and deciding how to spend it. We wanted to see what happened if wages for women’s work went directly into accounts they controlled.

Melinda: What was the most interesting thing you learned?

Rohini: Women who received wages in their own accounts earned more and saved more. The interesting thing was that they not only worked more in the government’s workfare program; they also worked more in the private sector. After the intervention, when we asked the women to tell us their occupation, they were more likely to say “worker” instead of “housewife.” That suggests a story of empowerment. Having and using a bank account changed her sense of self, or her ability to express her sense of self.

Melinda: You were able to do this study because India has invested in digital financial services. How does digital technology facilitate financial inclusion?

Rohini: Digital has changed the nature of banking and made it cheaper to reach the rural poor. The poor make very small and very frequent transactions—the two things that traditionally make it hard for banks to earn money. Now, though, you have a single person with a point-of-service machine who can sit in a room in the village and be the equivalent of the bank. Digital lowers the cost significantly. Moreover, bringing banking closer to villages is hugely important for women because of the mobility constraints we talked about.

Melinda: As India ramps up its efforts at financial inclusion, what does the country need to focus on to maximize its impact on women in particular?

Rohini: This world of digital banks is a very new world for women. An important finding from our study was that women need a lot of additional training to feel comfortable using digital financial services. Remember, in India, even if you’re in a digital world, you’re not in a world of internet banking where you have a smartphone app. If you own a phone and your bank is diligent, then you hopefully have an SMS that tells you when money turns up in your account, or, at best, an SMS on a regular basis that tells you what’s there. In reality, what we find is that an SMS typically gets sent only if you have a large enough account, and that is exactly what we don’t want. We want the people with the smallest accounts who are likely to be the furthest away to get the most information. Transparency is easier once you have a digital system, but you have to invest in it.

Melinda: What do you see that makes you most optimistic about the future?

Rohini: Generational change. When you go to a bank in a village right now, the people you see outside are school kids. Adolescent girls are well-versed in the financial system. You hear the bank tellers complaining that they’re always putting in one rupee at a time, and the tellers really don’t want to do it, but they can’t say no.

The stories behind the data

© 2017 Bill & Melinda Gates Foundation. All Rights Reserved.