The effect of formal banks on household income and poverty in Bangladesh

This paper examines the effects of rural financial development, measured in terms of number of formal bank branches in a sub-district, on household poverty in Bangladesh. The analysis is based on a hybrid data set which we created by combining sub-district level information on bank branch availabili...

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Main Authors:	Ahmed, M.K., Asadullah, M.N., Kambhampati, U.
Format:	Article
Published:	Malaysian Economic Association 2016
Subjects:	HB Economic Theory HC Economic History and Conditions HG Finance
Online Access:	https://mjes.um.edu.my/index.php/MJES/article/view/2767/955 https://mjes.um.edu.my/index.php/MJES/article/view/2767/955

id	um-18149
recordtype	eprints
spelling	um-181492017-11-07T07:55:14Z The effect of formal banks on household income and poverty in Bangladesh Ahmed, M.K. Asadullah, M.N. Kambhampati, U. HB Economic Theory HC Economic History and Conditions HG Finance This paper examines the effects of rural financial development, measured in terms of number of formal bank branches in a sub-district, on household poverty in Bangladesh. The analysis is based on a hybrid data set which we created by combining sub-district level information on bank branch availability and the presence of microcredit providers with household level information on poverty, assets, expenditure and so on. The latter was obtained from the nationally representative Household Income Expenditure Survey (HIES) for the year 2005 which sampled 6,400 rural households. We studied the effect of formal banks by estimating Least Square (OLS) regression models of household per capita expenditure and sub-district level headcount poverty. We found a statistically significant and positive relationship between the number of formal bank branches and household per capita expenditure and a negative association with the proportion of people living below the poverty line. These results were very robust to differences in household assets, occupation and demographic structure. In addition, differential access to NGO programs in the village and microfinance schemes at the sub-district level did not wash out the effects of formal banks on household expenditure. Formal banking coverage also remained negatively associated with headcount measures of poverty at the sub-district level even after controlling for remoteness, vulnerability to natural disasters and access to microfinance schemes. Overall, our results suggest that policies that improve access to financial services (e.g. presence of formal banks) in rural areas can complement government efforts to reduce poverty and improve rural welfare in developing countries. Malaysian Economic Association 2016 Article PeerReviewed https://mjes.um.edu.my/index.php/MJES/article/view/2767/955 Ahmed, M.K.; Asadullah, M.N.; Kambhampati, U. (2016) The effect of formal banks on household income and poverty in Bangladesh. Malaysian Journal of Economic Studies <http://eprints.um.edu.my/view/publication/Malaysian_Journal_of_Economic_Studies.html>, 53 (2). pp. 173-193. ISSN 1511-4554 http://eprints.um.edu.my/18149/
repository_type	Digital Repository
institution_category	Local University
institution	University Malaya
building	UM Research Repository
collection	Online Access
topic	HB Economic Theory HC Economic History and Conditions HG Finance
spellingShingle	HB Economic Theory HC Economic History and Conditions HG Finance Ahmed, M.K. Asadullah, M.N. Kambhampati, U. The effect of formal banks on household income and poverty in Bangladesh
description	This paper examines the effects of rural financial development, measured in terms of number of formal bank branches in a sub-district, on household poverty in Bangladesh. The analysis is based on a hybrid data set which we created by combining sub-district level information on bank branch availability and the presence of microcredit providers with household level information on poverty, assets, expenditure and so on. The latter was obtained from the nationally representative Household Income Expenditure Survey (HIES) for the year 2005 which sampled 6,400 rural households. We studied the effect of formal banks by estimating Least Square (OLS) regression models of household per capita expenditure and sub-district level headcount poverty. We found a statistically significant and positive relationship between the number of formal bank branches and household per capita expenditure and a negative association with the proportion of people living below the poverty line. These results were very robust to differences in household assets, occupation and demographic structure. In addition, differential access to NGO programs in the village and microfinance schemes at the sub-district level did not wash out the effects of formal banks on household expenditure. Formal banking coverage also remained negatively associated with headcount measures of poverty at the sub-district level even after controlling for remoteness, vulnerability to natural disasters and access to microfinance schemes. Overall, our results suggest that policies that improve access to financial services (e.g. presence of formal banks) in rural areas can complement government efforts to reduce poverty and improve rural welfare in developing countries.
format	Article
author	Ahmed, M.K. Asadullah, M.N. Kambhampati, U.
author_facet	Ahmed, M.K. Asadullah, M.N. Kambhampati, U.
author_sort	Ahmed, M.K.
title	The effect of formal banks on household income and poverty in Bangladesh
title_short	The effect of formal banks on household income and poverty in Bangladesh
title_full	The effect of formal banks on household income and poverty in Bangladesh
title_fullStr	The effect of formal banks on household income and poverty in Bangladesh
title_full_unstemmed	The effect of formal banks on household income and poverty in Bangladesh
title_sort	effect of formal banks on household income and poverty in bangladesh
publisher	Malaysian Economic Association
publishDate	2016
url	https://mjes.um.edu.my/index.php/MJES/article/view/2767/955 https://mjes.um.edu.my/index.php/MJES/article/view/2767/955
first_indexed	2018-09-06T06:48:18Z
last_indexed	2018-09-06T06:48:18Z
_version_	1610839751160496128

The effect of formal banks on household income and poverty in Bangladesh

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