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Barriers to Basic Banking: Results from an Audit Study

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In new study from NSE and IFMR, researchers use a “mystery shopping” approach where trained auditors, posing as low-income customers, attempt to open BSBDA (Basic Savings Bank Deposit Account) and low-cost accounts at banks in Chennai. The researchers rigorously document the barriers faced by potential customers, including complete recording of all interactions between auditors and bank staff. Their study finds that bank staff almost always refuse to offer the BSBDA, and aggressively discourage customers from opening other low-cost accounts. The researchers suggest immediate intervention to monitor ongoing financial inclusion policy implementation, and caution against driving G2P transfers until banks demonstrate capacity and willingness to meet basic standards of service and client protection.

From the 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.”

Amy Jensen Mowl and Camille Boudot (2014). Barriers to Banking: Results from an Audit Study in South India. NSE Working Paper Series No. WP-2014-1.

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5 Responses

    1. Dear Pras,
      Thank you for the kind words. We expect to release more results from the study over the next few months on this site, and look forward to your comments.

  1. Great study, enjoyed it . KYC issue is more profound when the gender dimension kicks in. Should KYC be more gender sensitive for those,who are first timers to a bank ? . The study could have also taken diverse agency types (banks) also to chart variations ( if any). Cheers

  2. Wow, I had no idea that this demographic faces so many challenges with basic banking. It’s something so many of us take for granted. Thanks for the post.

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