Role of Caste-Based Political Parties in Financial Inclusion in India

Abstract
Does minority representation in state legislative bodies improve the financial access of minorities? To answer this question, I examine the impact of political parties dedicated to the welfare of ethnic minorities on household access to credit. By exploiting the outcomes of close elections between minority-favoring parties and mainstream parties as a source of quasi-random variation, I show that a 1 percentage point increase in representation from a caste-based party increases the likelihood of having a formal loan by 0.94 percentage points and the amount of formal loans by 10 percent for low-caste households. The analysis of the channels reveals that an improvement in low-caste party representation in a district increases the rollout of bank credit from government-owned banks.