Bank branches and rural deposits : evidence from Bangladesh

The purpose of this paper is to document the deposit mobilization experience there and to test the relationship between rural deposits and rural bank branches. Most research on rural deposits assumes that increased bank density stimulates households to deposit by reducing transaction costs to make and withdraw deposits. Little attention is paid to how deposits affect bank branching. This paper presents the results of a model to test the simultaneous relation between bank branching and deposits. The paper first reviews the Bangladesh financial system and the policies that have influenced deposit mobilization, especially in rural areas and reports on the evolution of total and rural deposits. An econometric analysis of the determinants of rural deposits is then presented, followed by a discussion of the implications for rural deposit mobilization. (Author abstract. modified)