A note on banking reform and poverty: Revisiting the Indian social banking experiment

Recent empirical work demonstrates that state-led bank expansion in rural India has contributed to a reduction in the number of poor people. In this note it is shown that the social banking policies have not simultaneously decreased the rural poverty gap. This suggests a potential trade-off for policy makers, hinted at by earlier theoretical modeling: while opening new bank branches in “unbanked locations” might lift some people out of poverty, it may increase the depth of poverty of others. The result also illustrates the value added of combining complementary poverty measures to achieve a more complete picture of the impact of policies on livelihoods.