There is a big debate about the role of financial markets and products in shaping consumer welfare and real economic activity. In developed economies, there is an increasing discussion that financial sector may have become inefficiently large and products offered to households may have become excessively complex. In contrast, in many developing countries, like India, there has been a significant push to increase the usage of financial products — to “complete” the market.
This article is based on an extensive scientific study that evaluates the Pradhan Mantri Jan Dhan Yojna (“JDY”) launched in India on August 28, 2014. Our study has two modest objectives. First, we document the initial uptake and subsequent usage of banking services — that includes a savings account, overdraft facilities, and insurance benefits — by the unbanked targeted by the program. We compare the usage patterns of banking services of households who got access to banking under JDY with similar households who already had access to banking services before the program. Second, we exploit the regional variation in financial access to explore how expanding access to financial services is related to broader outcomes such as GDP growth, lending, consumption expenditure, retail commodity prices and house prices.
