Barriers to Basic Banking: Results from an Audit Study in South India

Authors: Amy Jensen Mowl and Camille Boudot
Publication: NSE, 2014

Abstract:

We conducted an experiment in urban South India to examine the barriers faced by customers in purchasing a low-cost savings product. We found that banks have a high ability to influence financial access outcomes, even when product availability and eligibility rules are non-discretionary. Nearly all banks refused to market the regulator-mandated basic accounts, despite the customers being atypically persistent in asking for “basic accounts.” Additionally, in more than half (55%) of the bank branches visited, customers were turned away when they attempted to negotiate for an alternative, affordable savings product—in half of the cases, the bank refused to accept the customer’s valid identity or address proof, while in the other half of the cases, the bank refused to market an alternative low-cost product. For the accounts that were opened, the banks demanded excessive identity and address documents, withheld key information about the product’s terms and fees, and imposed significant time, effort, and incidental costs on the customers. Given the benefits of low-cost accounts and their linkage to the Indian government’s broader financial inclusion goals, our findings suggest a need for careful monitoring and targeted enforcement of India’s financial inclusion policy implementation.

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