There is a growing concern among policy makers about the distribution of assets and wealth
among low-income households, especially in the developing countries. Such a distribution
has significant effect on the wellbeing of households and it also provides inputs to policy
makers in designing policies and programs for the betterment of poor households. Improving access to formal financial institutions such as banks for low-income households is one of
the key efforts of government programs. Compared to informal sources, formal institutions
help households reduce their transaction cost, provide better financial security, and easier
repayment of debt. This also encourages households to make small savings which ultimately
help them in building assets and creation of wealth. With the objective of bringing lowincome
households within the ambit of formal financial institutions, the Government of
India has launched wide range of programs. Providing basic savings account is the very
first step towards the movement called ‘financial inclusion’.
Poor people are vulnerable to fluctuations in income resulting from events such as
economic shocks, sickness, death or bad weather. When poor have access to a range of
financial services such as saving vehicles, insurance, and credit, it helps them in smoothing
of consumption despite large variation in income. Field experiment studies demonstrate that
poor but banked households are more likely to raise their consumption level, productivity
and income, health expenditures, and thus, are less exposed to illness and other such
unexpected shocks (Dupas and Robinson, 2009 and 2011; and Ashraf et al., 2011). Unbanked
households lack savings and are unable to fight income shocks and emergencies, and finally,
resort to borrowing from informal sources (Kempson and Whyley, 1999). Secondly, people
who save at home without any bank account are vulnerable to theft (Kempson and Whyley,
1998).
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