Pascaline Dupas and Jonathan Robinson (2009).  “Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya.”  Bureau for Research and Economic Analysis of Development Working Paper No. 220, March.

A field experiment in rural Kenya finds that savings accounts substantially increased business investment and daily expenditure among self-employed women, suggesting that there is a demand for formal savings methods in rural areas beyond the informal rotating savings and credit associations and household methods already available.

Women in many rural areas face barriers to saving.  Banks may not be available, and where they are present, they often charge steep account setup fees and require prohibitively high minimum account balances.  Facing this dearth of formal savings institutions, rural women often fall back on informal means such as rotating savings and credit associations and savings within the household.  However, these methods have drawbacks.  In the case of rotating associations, members can only withdraw money at set times, and membership is generally urban and vocation specific.  In the case of saving within the household, either in cash or in the form of livestock or durable goods, assets are vulnerable to theft.  Thus there is reason to expect that rural business owners might have difficulty saving.  Indeed, only 2.2 percent of individuals surveyed in rural Kenya had a savings account at a commercial bank at the time of the study.

Dupas and Robinson conduct a field experiment to examine the impact of formal savings accounts on rural self-employed individuals.  They offered interest-free accounts at a village bank to a random sample of rural entrepreneurs, including market vendors, bicycle taxi drivers, hawkers, barbers, carpenters, and other artisans.  They evaluated the impact of these accounts using a dataset of 185 self-reported daily logbooks on market investment, spending, and health, as well as account balance information provided by the bank.

Three interesting findings emerge from this study.  Firstly, formal savings accounts made a significant positive difference in female investment, but had no impact on male investment.  Specifically, female business investment increased by 40 percent four to six months after receiving an account.  The notable implication of this is that women “face large, negative private returns on the money they save informally.” 

Secondly, the authors find that female expenditure also rose six months after receiving an account, “suggesting that the higher investment levels led to higher income levels.”  Specifically, total daily expenditure increased by 37-44 percent, and expenditure on food by 14-29 percent.

Thirdly, savings accounts decreased female vulnerability to health shocks.  Logbooks indicate that women in the control group who were not offered savings accounts were forced to draw down their working capital when sick.  In contrast, women offered savings accounts “were less likely to reduce their business investment levels when dealing with a health shock, and were better able to smooth their labor supply over illness.”  Health shocks were quite common, with malaria occurring on 8.7 percent of days across the sample.  Logbooks indicate that in weeks afflicted by malaria, women invested less, were more likely to sell goods on credit, had higher medical spending, and lower food spending.  The authors suggest that “Given how common malaria is… the fact that working capital is drawn down due to health shocks could be a primary reason why so many microenterprises have difficulty growing in size.”

These findings imply that many women in rural Kenya are not able to save as much as they would like through the institutions currently available to them—rotating associations or saving within the home.  Indeed, 86 percent of respondents in the sample agreed that “it is hard to save money at home.”  The authors suggest that women with savings accounts were “better able to protect their income from others.”  Most importantly, this included extended family members asking for money.  They note that because of this, the overall welfare implications of such a program is unclear—savings accounts clearly benefit female account holders, but their impact on family members is uncertain.

Overall, the authors conclude that formal savings accounts significantly increase business investment and daily expenditure among women but have no impact on men.  They postulate that the two channels responsible for this change are that accounts enable women to save up for lumpy business investments in a way that rotating associations and household savings do not, and that accounts insulate women from health shocks.