People in rural Kenya are so suspicious of banks that even when they are given strong financial incentives to open an account, many choose not to, according recent IGC research by Pascaline Dupas (Stanford) and Jonathan Robinson (UC Santa Cruz). The researchers set up a social experiment to look at the reasons why so few people in rural Kenya have back accounts, in the hope that this can help governments aiming to increase people’s access to savings and loans in Africa as a whole. The experiment was in two parts: First, people without a bank account were randomly given vouchers that allowed them to open up a bank account for free, whereas there is usually a fixed cost in doing so. The researchers find that while 63% of people with vouchers opened an account, only 18% actively used it. Second, the research team provided information on local options for securing a loan and banks agreed to lower collateral requirements for an initial small loan. In the 6 months that followed, however, only 3% of people applied for a loan. These results suggest that even when the costs of opening an account and applying for a loan are reduced or even removed, people are still reluctant to use a bank. The authors give two main reasons for this. First, people do not trust the banks. About 20% of people surveyed said they feared embezzlement of funds, while over one-third said the banks were in some way unreliable. Their concerns are not unfounded. Just before the study launched, irresponsible lending by a major bank in the area had created a liquidity crisis, leading to a limit on withdrawals. The authors highlight this as an example of insufficient regulation and poor management. Second, even with the start up fees removed and loans made more affordable, banking fees are prohibitive for poor rural workers. One bank charges $0.30 per withdrawal, regardless of the withdrawal size, which can represent a large fraction of the withdrawal amount for small savers. In addition, the bank recently put in place a monthly account fee of $0.55 to be automatically deducted from all account holders. The authors highlight this as an example of a flawed fee structure that excludes the poor from banking services.