Does Financial Inclusion Mitigate Social Exclusion?

ABSTRACT This paper examines the role of financial inclusion in reducing caste‐based social exclusion using a quasi‐experimental design based on a 2005 branch expansion policy of the Reserve Bank of India. Employing a regression discontinuity framework, the findings reveal a significant increase in consumption and a reduction in poverty among marginalized castes compared to non‐marginalized castes. The study identifies three specific channels, informal credit, business finance, and the labor market, that contribute to the welfare gains of marginalized castes. In addition, the results show reductions in taste‐based discriminatory practices. Overall, this study underscores the role of the formal banking sector in mitigating deep‐rooted social norms, such as caste‐based discrimination.