Paper short abstract:

The expanding bank-network can reduce the gender gap in economic activity in villages. Bank proximity to un-banked villages within 5 km mitigated the gender gap in formal finance, enhanced female-entrepreneurship in non-agricultural sector and shifted from agricultural to non-agricultural for males.

Paper long abstract:

Women-owned enterprises are typically found to be lesser in number; smaller in size of output, sales and employment; concentrated in less efficient and labor-intensive sectors. Problem in acquiring financial resources is established as a significant barrier to women entrepreneurship. Can expansion of bank branch network reduce gender-gap in entrepreneurship and in uptake of formal credit in village level enterprises? To explore this issue, we construct a novel village-level panel data where we observe the distance of each un-banked village from its nearest village/town with bank branch from 1951-2019; and village-level enterprise data of three economic census rounds of 1998, 2005 and 2013. To account for endogenous placement of bank branches, we use a difference-in-difference methodology. We show that the presence of a bank branch within 5km of an un-banked village between 2005 and 2013 (Treatment Group) mitigated the gender gap in uptake of formal finance, increased female entrepreneurship and shifted occupational activities of males from agricultural to non-agricultural sector. The increase in number of female-owned enterprises is fully driven by the non-agricultural sector. Our results are robust to unobservable village and year effects, and presence of alternative village-level infrastructure.

While policy makers attempt to expand financial services, some studies argue that low demand for formal finance may make such interventions ineffective. We make an important contribution to the literature by showing that the supply side interventions are effective in increasing the formal finance net, and that the financial side of the economy can lead to structural change in the economy.