developed districts as compared to other banks. We exploit this policy shift and use the district-level proportion of people speaking a minority language ( _not_ English or Swahili) as an instrument for Equity Bank presence. Importantly, the fraction of people from a _district_ speaking a particular language should _not_ be directly linked to whether a particular _individual_ (who may speak the same or different language) has access to a bank account. Indeed, our tests confirm the validity of this instrument, and our instrumental variables (IV) regressions (Probit and GMM) confirm the positive and significant impact of Equity Bank presence on households’ access to financial services.

This paper extends the emerging literature on financial access and inclusion in developing economies as well as contemporaneous studies that focus on Kenya. Several papers have recently attempted to identify policies, services, and innovations that have a causal impact on financial inclusion through experiments based on randomized controlled trials (RCTs) conducted in developing countries.<sup>1</sup> While RCTs represent an important breakthrough in the study of financial inclusion (and other topics in development economics), they may carry some limitations: sample sizes are small, contexts differ, and small variations in experimental design can affect results (Ravallion, 2009). Thus, assessing the external validity of results generated in a specific experimental setting is a thorny issue in developing policy advice. Moreover, important developments in financial inclusion, such as the one studied in this paper, are taking place without the aid of experiments and are not amenable to study via randomization. We, therefore, view our nationally-representative evidence on branch penetration and financial access as complementary to the experimental evidence from RCTs, which usually focuses on a small set of communities.<sup>2</sup> Our study is closest to Burgess and Pande (2005) and Bruhn and Love (2009). Using state-level data and exploiting a shift in the branch licensing policy in India, Burgess and Pande (2005) investigate the impact of access to banking services. They find that bank branch expansion lowered rural poverty, and increased non-agricultural output. Bruhn and Love (2009) show that the entry of Mexico’s Banco Azteca, which opened branches in the stores of Grupo Elecktra, a large retailer of consumer goods, in 2002, was associated with an increase in the start-up of small businesses and a 7

> 1 Some recent papers using RCTs to study the impact of financial inclusion in developing economies are Banerjee et al. (2010), Brune et al. (2011),  Dupas and Robinson (2009), Dupas et al. (2012), and Karlan and Zimmerman (2010, 2011).

> 2 Our paper also expands international evidence on the determinants of access to financial services in less developed economies. Using survey data for 29,000 households from 29 transition economies, Beck and Brown (2011) investigate how access to financial services is related to household characteristics, bank ownership structure and the development of the financial infrastructure. Beck et al. (2010) and Beck et al. (2011) also use the same surveys that we do to describe aspects of financial inclusion in Kenya.

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