Financial Access and Entrepreneurship by Gender: Evidence from Rural India

Abstract

Does improved access to financial sources increase entrepreneurship across gender? We explore this question in the Indian context, by constructing a novel measure of financial access defined as the distance of each unbanked village to the nearest banked centre. Using economic census data at the village level, we find that the proximity of an unbanked village to a banked centre within 5 km increases entrepreneurship in the non-agricultural sector. While exploring the mechanisms, we find that the impact on women is driven by the uptake of institutional credit. The prevailing norms around gender influence the gains from bank proximity as the impact on women enterprises occurs mainly in villages which have liberal social norms. Results hold when we use the number of branches within 5 km as an alternate measure of financial access. Results are robust to several additional tests. Our results show that the lack of nearby banking facilities represents a key constraint for women, and hence, widespread banking outreach can boost female entrepreneurship in rural areas.