Article | Journal of Finance | December 2011

Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?

by Shawn A. Cole, Thomas Sampson and Bilal Zia

Abstract

Financial development is critical for growth, but its micro-determinants are not well understood. We test leading theories of low demand for financial services in emerging markets, combining novel survey evidence from Indonesia and India with a field experiment. We find a strong correlation between financial literacy and behavior. However, a financial education program has modest effects, increasing demand for bank accounts only for those with low levels of education or financial literacy. In contrast, small subsidies greatly increase demand. A follow-up survey confirms these findings, demonstrating that the newly opened accounts remain open and in use two years after the intervention.

Keywords: Price; Knowledge; Demand and Consumers; Emerging Markets; Banks and Banking; Education; Finance; Behavior; Service Operations; Financial Services Industry; India; Indonesia;

Citation:

Cole, Shawn A., Thomas Sampson, and Bilal Zia. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?" Journal of Finance 66, no. 6 (December 2011): 1933–1967.