The Impact of Access to Finance in Rural Tamil Nadu: Evidence From a Randomized Control Trial

Using an experimental approach, this study evaluates the impact of a formal financial service delivery model – Kshetriya Grameen Financial Services (KGFS) – on rural households in Tamil Nadu.

There is widespread agreement on the importance of providing financial services to the poor to enable them to invest in income generating activities and mitigate risks associated with economic activities and unanticipated shocks. However, there is a dearth of rigorous evidence on the impact of formal financial services on the lives of low-income households. This study undertakes an experimental evaluation of the impact of expansion of formal financial access through Kshetriya Grameen Financial Services (KGFS) operations in rural areas of Tamil Nadu, at both the household and village level. The KGFS model provides access to a broad range of products including (but not limited to) loans, savings, insurance and investment options to households using a customized wealth management approach focused on ensuring the suitability of products sold to each household’s unique financial situation.
The study was conducted in 876 villages spread across three districts in the state of Tamil Nadu. The main evaluation survey involved over 4000 households, and an additional social network survey in over 19,000 households in 205 villages. Using a randomized controlled trial, the study evaluated the impact of a financial service delivery model on four broad parameters:
a) Household economics in terms of credit and saving patterns, expenditure behaviour and other socio-economic variables of interest
b) Agriculture related outcomes and adoption of agricultural technology inputs
c) Health outcomes by objectively measuring the levels of stress and anaemia in the body
d) Contraction/expansion of social networks both at the village and household level.

Key Findings

Results from the study suggest that living in an area where KGFS expanded increases households’ likelihood of participating in formal banking. Compared to the control group, at endline, treated households are significantly more likely to have formal outstanding loans, have a larger number of formal loans, and borrow more from formal lenders. They also report higher savings. In addition, households in treated areas are less likely to borrow from informal sources such as moneylenders and financiers. Importantly, these household level changes are paralleled in network changes: households in treated villages report lower borrowing capacity both from moneylenders and from individuals living both inside and outside their village than control group households.

These results suggest that expanding access to formal financial products and services to rural households not only crowds out informal borrowing, but also has a positive impact on saving, on households’ business activities, and on their ability to cope financially with health shocks. Increasing access to formal financial services seems to positively impact poor households through income stabilization and increased financial security. From a policy perspective, the results provide strong evidence on the links between financial inclusion and overall socio-economic well-being of the households. We see that access to formal financial services to unbanked and underbanked population increases the usage of financial services as depicted in the form of increased likelihood to save and borrow from formal sources, leading to positive externalities on the overall welfare of households.

Thematic area

Financial Inclusion

Project Leads

Rohini Pande, Erica Field


Tamil Nadu


Kshetriya Grameen Financial Services, IFMR Trust