Banking The Unbanked: What do 255 Million New Bank Accounts Reveal about Financial Access?

In this ongoing study, we use the largest financial inclusion program in the world to study the role of financial inclusion on the unbanked and the real economy. Using administrative account level micro data, we find that the program led to 255 million new bank account openings in India (as of November 2016). About 77% of the new accounts maintain a positive balance and usage increases over time with inward and outward remittances being the most common transaction performed by the individuals. While the average usage remains initially quite infrequent, the usage patterns under the program gradually converge over time to those of similar households who had prior access to formal banking products. This evidence is consistent with learning by individuals that results in an increase in usage over time as they gain familiarity with banking services. Exploiting regional variation in ex-ante financial access, we find an increase in lending and defaults on new loans in regions with low ex-ante access to banking services. These results are consistent with banks catering to the new demand for formal banking credit by previously unbanked borrowers.