Impact of Linkage to Financial Institutions among the Unbanked Rural People in Bangladesh: Evidence from Randomized Controlled Trial

Abstract

Despite having advantages and options of formal savings, the poor are inclined to save informally because of their not having formal-financial accounts. This risky and costly informal savings mode needs to be changed since formal savings has multidimensional effect on national economy. Previous studies showcased the poor people’s savings inclination based on savings instruments such as money box, zip box, lock box, commitment and goal settings. This study aims to highlight the impact of linkage to financial institutions among the unbaked people in opening formal-financial accounts and the subsequent impact on savings. Based on our cross-sectional data from 505 unbanked people at Raiganj sub-district under Sirajganj district in Bangladesh, we found that linkage to financial institutions positively impacts on savings. For instance, the respondents are able to deposit 131.19 taka and 103.33 taka (Bangladeshi currency) in banks and micro-financial institutions after six months respectively. In addition, no accounts are found as inactive. The savings rate increased at 11.75% and 53.88% between the two quarters among the bank and micro-financial account holders respectively. The findings of the study have policy implications on financial inclusion and enhancement of domestic savings.