The results from a NABARD survey on financial inclusion published last month showed that access to financial services in India remains weak despite new government schemes such as “Pradhan Mantri Jan-Dhan Yojana" and policies such as the business correspondents (BCs) policy of the Reserve Bank of India (RBI), meant to widen the reach of banks beyond their brick-and-mortar branches.

However, a forthcoming paper in the Journal of Development Economics by Anjini Kochar of Stanford University paints a different picture. Kochar shows that India’s financial inclusion efforts, in particular the use of banking correspondents to enable branchless banking in rural India, has helped increase savings and other financial outcomes of rural households.

Using survey data from 6,000 households in Karnataka, the author compares savings data before and after the launch of the banking correspondent policy. She finds that banking correspondent coverage, on an average, increases annual household savings by roughly 14,000 and that it is likely to generate larger improvements in savings of poor households compared to non-poor households.

Banking correspondents, Kochar explains, improve total household savings largely because their use of mobile technology through point of service instruments significantly reduces costs incurred by rural households in accessing financial services. Given that poorer households tend to use a wider range of products and services such as welfare payments (Mahatma Gandhi National Rural Employment Gurantee scheme or MGNREGS wages), they generate more income for banking correspondents in the form of commissions. As a result, banking correspondents have an incentive to service them better.

Kochar finds that improvements in savings in bank accounts are significantly smaller than the overall increase in savings. She shows that savings in poor households are primarily maintained in the form of cash, land, and also used to pay back loans from moneylenders.

Kochar argues that the integration of the financial system with India’s welfare programmes such as MGNREGS enhances the viability of banking correspondents and this may have explained its success relative to other financial inclusion programmes led by local agents. The integration with MGNREGS has also meant that it is the landless and those with less land who have reaped the benefits of the banking correspondents policy more compared to the landed, given that the landless tend to avail of MGNREGS work in greater numbers.

Also read: Branchless Banking: Evaluating The Doorstep Delivery Of Financial Services In Rural India