Can financial incentives work to help people quit smoking? The CARES (Committed Action to Reduce and End Smoking) Program, creates a commitment contract that provides financial incentives for smokers who wish to quit smoking. Smokers offered the product were more likely to be smoke-free 6 and 12 months afterwards.
Policy Issue:
Despite detrimental effects, people throughout the world habitually engage in damaging or inefficient habits such as smoking, eating poorly, or failing to save money. Experts believe that this is because people’s preferences change over time: in the long-run an individual may wish to quit smoking, for example, but in the moment their preference for a cigarette may outweigh their desire to quit. Such behavior, known as time inconsistent preferences, may help to explain why people make inefficient choices that result in poor health or a lack of financial cushioning. Some researchers theorize that habits that have negative long-term effects can be discouraged by giving people commitment devices: contracts which constrain their future behavior, and may exact a financial penalty if they revert to bad habits.
Context of the Evaluation:
Despite its serious health effects, smoking is extremely commonplace in the Philippines: in 2009, 28.3 percent of Filipinos aged 15 years or older were current smokers, and 22.5 percent smoked on a daily basis. Smoking is also a considerable expense, with the average surveyed smoker spending approximately 100 pesos (US$2) per week on cigarettes, nearly 15 percent of their monthly income. Even though it is a common behavior, 72 percent of survey respondents reported that they wanted to stop smoking at some point in their life, and nearly 45 percent indicated that they had tried to stop smoking within the last year. Survey responses suggest that their lack of success may be due to time inconsistent preferences: though 72 percent reported that they wanted to stop smoking at some point, only about 18 percent of people said that they wanted to stop smoking now.
Details of the Intervention:
Committed Action to Reduce and End Smoking (“CARES”) is a voluntary commitment savings program. The basic design of the product allows a smoker to deposit a self-selected amount of his own money that will be forfeited unless he passes a biochemical test of smoking cessation. To enroll people in the CARES program, the Green Bank of Caraga identified regular smokers off the street and asked them if they wanted to participate in a short survey on smoking. All subjects received an informational pamphlet on the dangers of smoking, and a tip sheet on how to quit. After completing this baseline survey, subjects were randomly assigned to receive one of four offers:
CARES with deposit collection: A minimum balance of 50 pesos (about US$1) was required to open a CARES account, and individuals were encouraged by marketers to deposit the money they would normally spend on cigarettes into this account each week. This group also received weekly visits from deposit collectors, saving them the weekly trip to the bank. All CARES clients were able to deposit into, but not to withdraw from these accounts, and the accounts yielded no interest, to discourage non-smokers people from using them as a substitute for normal savings accounts.
CARES without deposit collection: Same as above, except these clients had to go to a bank branch themselves to make deposits.
Cue Cards: These individuals got to choose from among four wallet-sized cards depicting negative health consequences of smoking: premature babies, bad teeth, black lung, or a child hooked up to a respirator. They were encouraged by the marketers to keep them in a prominent location.
Comparison Group: These individuals received no additional information.
Six months after the baseline survey, all survey respondents took a urine test to determine if they were still smoking. Individuals in the CARES treatment groups would receive their entire balance back if they passed the test, but would forfeit it if they failed or refused to take the test. Non-clients (those assigned to the cues and comparison groups) were paid 30 pesos (US$0.60) for taking the six-month test, and all respondents were paid 30 pesos for taking another test 12 months after the baseline.
Results and Policy Lessons:
In total, about 11 percent of individuals who were offered CARES signed a contract. Individuals who reported wanting to quit, who were optimistic about quitting, and who already exhibited strategic behavior to manage their cravings (i.e. avoiding situations that made them want to smoke) were more likely to sign a contract. On the other hand, individuals who reported wanting to quite more than a year in the future, and who showed signs of being heavy smokers were less likely to sign a contract. Ninety percent of CARES clients opened with the minimum amount of 50 pesos, and 80 percent made additional contributions. The average client contributed about every two weeks, and after six months had a final balance of around 553 pesos, equal to approximately six months’ worth of cigarette spending.
Individuals who were offered a CARES contract were 3.3 to 5.8 percentage points more likely to pass a urine test for nicotine after six months than those in the comparison group, and were 3.4 to 5.7 percentage points more likely to pass after 12 months—a substantial effect considering that only 8.9 to 14.7 percent of comparison individuals passed the test. This represents an over 35 percent increase in the likelihood of smoking cessation compared to baseline. However, despite these large treatment effects, a surprisingly large proportion (66 percent) of smokers who voluntarily committed to CARES ended up failing to quit. Still, the results of the CARES program were far above the reductions in smoking associated with the cue card treatment, which had no effect on smoking cessation: though over 99 percent of clients offered the cue cards accepted them, fewer than half remembered the cards and knew where they had put them one year later, and only about 5 percent reported still using them to manage cravings. However, it is still not known how much of the CARES treatment effect was due to the financial commitment that all clients made, and how much was due to the frequent contact that some clients had with deposit collectors.
Microfinance institutions have increased access to financial services over the last few decades, but provision in rural areas remains a major challenge. Traditional community methods of saving, such as ROSCAs can provide an opportunity to save, but do not allow savers to earn interest on their deposits as a formal account would, or provide a means for borrowing. Savings Groups attempt to address these shortcomings by forming groups of people who can pool their savings in order to have a source of lending funds.
Policy Issue:
Although during the last decades microfinance institutions have provided millions of people access to financial services, provision of access in rural areas remains a major challenge. It is costly for microfinance organizations to reach the rural poor, and as a consequence the great majority of them lack any access to formal financial services. Traditional community methods of saving, such as the rotating savings and credit associations called ROSCAs, can provide an opportunity to save, but they do not allow savers to earn interest on their deposits as a formal account would. In addition, ROSCAs do not provide a means for borrowing at will because though each member makes a regular deposit to the common fund, only one lottery-selected member is able to keep the proceeds from each meeting.
Village Savings and Loan Associations (VSLAs) attempt to overcome the difficulties of offering credit to the rural poor by building on a ROSCA model to create groups of people who can pool their savings in order to have a source of lending funds. Members make savings contributions to the pool, and can also borrow from it. As a self-sustainable and self-replicating mechanism, VSLAs have the potential to bring access to more remote areas, but the impact of these groups on access to credit, savings and assets, income, food security, consumption education, and empowerment is not yet known. Moreover, it is not known whether VSLAs will be dominated by wealthier community members, simply shifting the ways in which people borrow rather than providing financial access to new populations.
Context of the Evaluation:
The Village Savings and Loans program in this study is implemented in rural communities in the Mzimba, Zomba, Mchinji and Lilongwe districts in Malawi. Community members in these four districts are predominantly engaged in agricultural activities. With little access to formal financial institutions, these small farmers do not have the opportunity to invest in agricultural inputs like fertilizer that could increase their income.
Description of the Intervention:
Three hundred eighty villages were selected to participate in this study and randomly assigned to a treatment or comparison group. Half of the villages in the treatment group were introduced to the VSLA model by field officers trained by CARE and its local implementing partners. Local village agents were subsequently selected from each village and trained to replicate the VSLA training in a second village in the treatment group.
Field officers and local village agents present the model to villagers at public meetings. Those interested in participating are invited to form groups averaging about twenty and receive training. These groups, comprised mostly of women, meet on a regular basis, as decided by members, to make savings contributions to a common pool. At each meeting, members can request a loan from the group to be repaid with interest. This lending feature makes the VSLA a type of Accumulating Savings and Credit Association (ASCA) providing a group-based source of both credit and savings accumulation. CARE’s VSLA model also introduces an emergency fund, allowing members to borrow money for urgent expenses without having to sell productive assets or cut essential expenses such as meals.
This study will assess the impact of VSLA trainings and group membership on access to credit, savings and assets, income, food security, consumption education, and empowerment.
Results and Policy Lessons:
Results forthcoming.
We are also working with CARE to evaluate their VSLA programs in Ghana and Uganda. See here for more details.
In the last three decades, microfinance has generated worldwide enthusiasm as an innovation in anti-poverty policy by bringing formal financial services to the poor. But relatively little is known about the asset side of microfinance services – microsavings. Deposit-collection services, regular pickup of cash with unrestricted rights to withdraw it later, are a popular tool among both microfinance lenders and clients across the globe. Savings programs provide banks with a mechanism to learn more about potential lending clients, and for clients, the reward of a future loan may be incentive enough to encourage them to save regularly via the service. A high demand for formal savings mechanisms also implies that in-home solutions, such as hiding money in a mattress, are not satisfactory to people. But, it is yet unclear whether deposit-collection services will actually be utilized to generate higher savings rates than the status quo.
Context of the Evaluation:
Over the past several decades, savings in the Philippines has largely stagnated. In the 1960s, domestic savings rate was over 20 percent of GDP, making it one of the highest in Asia. At present, the country's savings rate hovers between 12 and 15 percent - far below the level of savings for most East Asian countries, which ranges from 25 to 30 percent. However, there is evidence that poor and low-income Filipinos do save, or at least have the capacity to do so, and informal savings mechanisms appear to be widespread throughout the country. In an effort to provide formal savings options to their microfinance clients, the well-established Green Bank of Caraga developed a deposit collection service. Sampled bank clients represent a wide cross-section of the Philippines, including individuals from broad economic and educational backgrounds.
Details of the Intervention:
Researchers evaluated the impact on savings balances and borrowing behavior from a deposit-collecting program offered by the Green Bank of Caraga. To gain insight into the mechanisms that might cause increases in savings rates, and the type of individuals who demand this specialized savings service, researchers investigated the determinants of take-up.
Green Bank first identified ten barangays (small political and community units) that were reasonably accessible and had a significant enough number of existing clients to warrant sending an employee into the area. These barangays were located around Butuan City in northern Mindanao, where the head office of the Green Bank is located. Green Bank marketing representatives were able to reach 137 existing clients' homes in five randomly selected treatment barangays. A door-to-door deposit-collector service was offered, which would collect funds to be deposited at the local bank. The cost of the service was 4 pesos per pickup, and clients could choose either a monthly or bi-weekly pickup schedule. If clients chose to participate, they committed to pay for the pick-up service regardless of whether they submitted a deposit, although this was not always enforced. The remaining five barangays were offered no collection services, serving as the comparison. In both treatment and control barangays, clients could withdraw their funds at any time.
Results and Policy Lessons:
Take-Up Determinants: Distance to the bank branch, a measure of the transaction cost that a client incurs by depositing money normally, was a strong determinant of take-up. Each additional 10 kilometers a client had to travel to make a deposit increased the probability that they would enroll in the deposit collection service by 6 percentage points. Additionally, married women were more likely to take up the service relative to single women - being married increased the probability that a woman would take-up the service by about 13 percent. However, married men were no more likely than single men to take up the service. The gender difference suggests that intra-household decision making factors play a strong role in the take-up of deposit-collection services.
Impact on Take-Up: The deposit-collection service resulted in a substantial increase in savings for those offered the service. Of the 137 clients offered the service, 28 percent took up the deposit collection. Of those 38 individuals, 35 chose monthly service, though 18 never deposited money through the collectors during the 10-month study period. Despite the wide variance in the impact on savings of the deposit-collection, on average, the impact was positive relative to savings changes of clients in the comparison barangays. The deposit-collection service increased savings by about 25 percent after 10 months. The average person made 3.85 deposits over the 10 month period, and the average deposit amounted to 497 pesos. Overall, after 10 months treatment clients saved 228 pesos more than the comparison. These results could be attributed to decreased transaction costs, facilitating follow through on financial planning and providing a public commitment device for limiting spending, among other explanations. Further, there was a slight decrease in borrowing for those clients offered the deposit-collection service, possibly due to the increase in assets.
Previous research suggests that many people lack the skills needed to calculate expected returns or present discounted values, which may cause them to make suboptimal financial decisions. Previous work by Hastings and Tejeda-Ashton in Mexico showed that the way that returns to a pension program were presented (in pesos versus as an annual percentage) affected price sensitivity. Another explanation offered for sub optimal financial decisions is the present bias of many decision makers, who are impatient and consistently choose immediate gratification instead of a more measured approach that allows for optimal saving for future consumption.
This project makes use of the biannual Encuesta de Protección Social (Social Protection Survey, EPS), a nationally representative panel survey of 17,000 households, to undertake two experiments that seek to better understand the determinants of saving and financial management decisions.
Chile has had a privatized national defined contribution system since 1981, in which participants can select which of five fund managers will handle their retirement accruals. Workers select the fund in which to place their money, and the government provides published statistics on load fees and past returns. In the first experiment, we will provide information on returns net of fees to individuals in one of these randomly-assigned formats: either expected pension account gains or expected pension account costs over a ten year period, and either presented in Chilean pesos or in Annual Percentage Rates. Participants will view the information and be asked to indicate how they would rank the funds. They will then be given the information sheet to keep. Using dministrative data in the Chilean pension system, we will track the impact this information has on the fund people choose.
The second experiment will allow researchers to create a measurement for the participants' ability to delay gratification. We will use this measure to examine how well this ability to forgo current gratification to gain higher returns later explains pension investment decisions, weight and health investments, and propensity to spend on impulse products and carry credit card debt. At the end of each survey, the participant will be asked to participate in an additional survey that will earn them a git certificate to the largest grocery store chain in Chile. They can choose to do the survey now for a set amount reward, or do the survey within the following month, and upon mailing it back receive a higher credit to the card. The difference between immediate payment and future payment will be randomized so that the return on waiting ranges from 20 to 60 percent. Links to both EPS and grocery store data (including store credit cards) will allow us to track future pension and consumption decisions and draw conclusions based on revealed ability to delay gratification.
Due to the absence of efficient credit and insurance markets, household savings are often a crucial determinant of welfare in developing countries. Without savings, households have few other mechanisms to smooth out unexpected variations in their income, and so shocks, such as health emergencies, can force households into selling assets or taking on debt. Additionally, since savings are one of the few means to accumulate assets in the absence of credit and insurance markets, the capacity to save becomes one of the main vehicles of social mobility and of enhancing future income-earning possibilities. Many people express a desire to save more in the future, but when the time comes, find it difficult to do so. Financial institutions have designed saving products to help clients commit to saving in the future, however the effectiveness of many such products has yet to be evaluated.
Policy Issue:
Due to the absence of efficient credit and insurance markets, household savings are often a crucial determinant of welfare in developing countries. Without savings, households have few other mechanisms to smooth out unexpected variations in their income, and so shocks, such as health emergencies, can force households into selling assets or taking on debt. Additionally, since savings are one of the few means to accumulate assets in the absence of credit and insurance markets, the capacity to save becomes one of the main vehicles of social mobility and of enhancing future income-earning possibilities. Many people express a desire to save more in the future, but when the time comes, find it difficult to do so. Financial institutions have designed saving products to help clients commit to saving in the future, however the effectiveness of many such products has yet to be evaluated.
Context of the Evaluation:
The savings rate in Bolivia is low compared to elsewhere in the South American region. Encouraging savings, however, can be costly and risky. Since microfinance institutions (MFIs) often struggle to control costs and are highly risk averse, many MFIs in Bolivia have preferred to recapitalize their loan portfolio with ‘easy money’ such as donor funds and concessionary loans. However, some MFIs in Bolivia are now beginning to realize that, while savings services seem to be more costly and risky relative to other sources of financing, they may be handicapping themselves by not developing robust deposit taking services and the systems to support them. Clients of the for-profit bank Ecofuturo express a clear desire to save: over 56,000 clients held savings accounts in 2008, a greater number even than the approximately 42,500 active borrowers.[1] One of the savings accounts offered by the bank is a “programmed” savings account, which offers clients a favorable interest rate and free life and accident insurance in exchange for making regular deposits and accepting limits on withdrawals. In particular, clients must make a deposit each month and can withdraw funds from the savings account only in the month of December. Yet despite the popularity of the savings accounts, over 40% of savings clients fail to deposit each month as required.
Description of Intervention:
Researchers are working with Ecofuturo to measure the effectiveness of sending text message reminders to clients holding these programmed savings accounts. The evaluation focuses on a specific programmed savings account called Ecoaguinaldo that is similar to a Christmas Savings Club. The Ecoaguinaldo mimicks the aguinaldo, the year-end bonus many salaried Bolivians receive at the year’s end. The Ecoaguinaldo is used by unsalaried workers and those who want to supplement existing savings accounts, as well as by small business owners who wish to ensure that they have sufficient funds to provide their employees with the expected holiday bonus. Clients typically open an Ecoaguinaldo account at the beginning of the year and withdraw the savings they have accumulated over the year in December. Receiving a lump sum in December allows clients to meet their end-of-the year financial obligations. The text message reminders provide an opportunity to explore what types of messages are most effective at motivating clients to follow through on their desires to save.
Half of the savings clients with a listed cell phone number were randomly selected to receive a monthly text message reminding them about their Ecoaguinaldo account. There were four distinct messages, which combined a mention of either the savings goal (monthly goal amount in order to receive a year end monetary bonus) or the reward (an active and free life insurance product if all monthly deposits made), and framed the message as either a loss or gain. The messages to the four treatment groups were:
1. Goal-Gain: Earn your Aguinaldo! With this month's deposit you will be one step closer to reaching your savings goal.
2. Goal-Loss: Don't fail to earn you Aguinaldo! If you miss this month's deposit you may not reach your savings goal.
3. Reward-Gain: Earn your reward! Don't forget you deposit this month. Remember, you will earn a reward of X if you make all of your deposits on time.
4. Reward-Loss: Don't lose your reward! Don't forget you deposit this month. Remember, you will lose your reward of X if you do not make all of your deposits on time.
Half of the people who received messages in 2008 were in the comparison group the next year, so that the impact of receiving messages one year but not the next could be measured. In the last three months of the project in 2008, the number of treatments was doubled to eight. Each of the four original treatments were split in half, and preceded by the phrase “Ecofuturo supports your decision to save,” to one of the halves. Based upon the 2008 results, in 2009 only messages that focused on the reward were sent.
Results and Policy Lessons:
Overall the reminder message increased savings balances weakly (not statistically significant) and the probability of meeting the savings goal of making one deposit a month by 3%. When results are pooled across similar experiments in Peru and the Philippines, we increase the power of our study, finding the same sized effects statistically significant at the 10% level for savings balances and the 1% level for the proportion of clients meeting their goal. Messages that mentioned the incentives of maintaining your life insurance policy and receiving reward interest were most effective, increasing savings balances by 10%. We see no difference between the effectiveness of messages framed with “gain” and “loss language.” Preliminary results from 2009 suggest that the effectiveness of reminders may decrease over time. The increase in savings due to the reminders was large enough to make it a profitable venture for the bank. Moving forward, reminders will be a standard component to the bank’s programmed savings accounts.
Evaluating how Saving for Change groups increase women’s access to credit and helps them invest in their agricultural activities.
Policy Issue:
Traditional community methods of saving, such as ROSCAS (Revolving Savings and Credit Associations, called tontines in Mali), offer tools to rural villages in which access to financial services is limited. However these groups, operating at the village level in many African, Asian, and Latin American villages, tend to be poorly organized, often lack in transparency, and are subject to misuse. In addition, ROSCAs do not provide a means for borrowing at will because although each member makes a regular deposit to the common fund, only one lottery-selected member is able to keep the proceeds from each meeting.
Community savings groups attempt to overcome the difficulties of the ROSCA model by creating groups of people who can pool their savings in order to have a source of lending funds. Members make savings contributions to the pool, and can also borrow from it. As a self-sustainable and self-replicating mechanism, these savings groups have the potential to reach more remote areas, but it remains to be seen what their impacts will be.
Context:
In the rural region of Segou, Mali, the economy is mainly based on subsistence agriculture, with a small presence of commerce and fishing. Principal farm products such as millet, sorghum, rice, and maize are used by households as the main source of consumption and income. With a lack of financial means to hire labor and buy inputs to grow cereals, women’s economic activities are mainly dominated by the production of groundnuts and gardening products and by the making of shea butter. Some women participate in tontines, informal ROSCA groups. However, these groups do not offer loan services, and so new programs, such as the “Savings for Change” program championed by Oxfam America and Freedom from Hunger, are being introduced in the area.
Description of Intervention:
Locally known as Épargner pour le Changement, the Saving for Change methodology is a new form of community savings program which integrates self-managed saving and lending groups with education sessions. Five hundred villages in the Segou region of Mali were selected to participate in the study, and the program is being offered to a random sample of half of the villages. Field agents from local partner NGOs present the concept to village leaders and train self-selected groups of about 20 women each on how to manage their meetings. Group members save a set amount each week and can benefit from short term loans from the group savings fund. Loans are paid back with interest, allowing the fund to accumulate capital both from the weekly contributions and from interest payments. After a pre-determined period members divide the group fund in proportion to their weekly contributions.
For about a year, a field agent provides technical assistance to the newly-formed groups. During the first three months, the agent visits the group once a week, which is followed by a bi-weekly visit for another three months, during which the agent also introduces malaria education, as group meetings are also a space for discussion of community issues and education sessions. During the last six months of the training, the field agent shows up only once a month to monitor groups. A memory-based, oral record-keeping system has been designed for groups to manage meetings autonomously and to ensure transparency.
Program growth is accelerated by training group members who volunteer to start new Saving for Change groups themselves. In order to test the effectiveness of different implementation strategies, we compare two methods for training village replicator agents. In some randomly selected villages, field agents give replicators a pictorial manual and a formal three-day training on how to start and manage groups. In other villages the replicator agents receive no formal training, reducing program costs.
What type of people participate in Village Savings & Loan Programs (VSLAs)? What impact do these programs have on households and communities?
Policy Issue:
Although during the last decades microfinance institutions have provided millions of people access to financial services, provision of access in rural areas remains a major challenge. It is costly for microfinance organizations to reach the rural poor, and as a consequence the great majority of them lack any access to formal financial services. Traditional community methods of saving, such as the rotating savings and credit associations called ROSCAs, can provide an opportunity to save, but they do not allow savers to earn interest on their deposits as a formal account would. In addition, ROSCAs do not provide a means for borrowing at will because though each member makes a regular deposit to the common fund, only one lottery-selected member is able to keep the proceeds from each meeting.
Village Savings and Loan Associations (VSLAs) attempt to overcome the difficulties of offering credit to the rural poor by building on a ROSCA model to create groups of people who can pool their savings in order to have a source of lending funds. Members make savings contributions to the pool, and can also borrow from it. As a self-sustainable and self-replicating mechanism, VSLAs have the potential to bring access to more remote areas, but the impact of these groups on access to credit, savings and assets, income, food security, consumption education, and empowerment is not yet known. Moreover, it is not known whether VSLAs will be dominated by wealthier community members, simply shifting the ways in which people borrow rather than providing financial access to new populations.
Context of the Evaluation:
The Northern region of Ghana is one of the least developed parts of the country. The majority of its residents make their living in agriculture. Services including mail delivery, telephone, and medical clinics are very limited in this sparsely populated part of Ghana.
Description of Intervention:
In Ghana, researchers are working to measure the dynamics of self-selection with VSLAs. This study is conducted with 180 communities selected by our partner, CARE, after being identified as villages in which VSLA programs could be initiated. Ninety villages were randomly selected to receive the VSLA intervention, and the remaining 90 villages are used for comparison. For those villages randomly assigned to receive the intervention, a CARE representative will enter the village to meet with residents and begin to form VSLAs there. Interested participants form groups of 15 to 30 community members, pooling their capital to create a fund from which members can borrow. Members pay back loans with interest, and savings also earn interest, with the rates determined by the group at its founding. The CARE representatives initiate the formation of new VSLAs, but the eventual goal of the intervention is to provide the community with the capacity to make these groups self-sustaining by providing training on initiation and administration of new VSLAs.
Three years after full implementation, a follow up survey will allow researchers to understand who chooses to participate in VSLAs in Ghana, as well as how their lives may be affected as a result.
Results and Policy Lessons:
Results Forthcoming.
We are also working with CARE to evaluate their VSLA programs in Malawi and Uganda. See here for more details.
The recent and rapid growth of the microfinance industry in the developing world can be attributed, in large part, to the achievement of impressively high loan repayment rates among microborrowers. However, although final default rates are low amongst microfinance borrowers, late repayment is a much larger issue. While microborrowers have surprised skeptics with their ability to repay loans, microfinance institutions (MFIs) and commercial banks lending to the poor still struggle with relatively high transaction costs and low rates of return. All types of MFIs, from strictly for-profit to mission-oriented, would benefit from inexpensive mechanisms for boosting timely repayment rates and lowering administrative costs per borrower. One such solution may be automated loan repayment reminders sent via text (or SMS) on mobile phones. This study tests the effectiveness of one such intervention in improving repayment and reducing default.
Context of the Evaluation:
Known as the text message capital of the world, the Philippines witnesses the transmission of over 1 billion text messages every day and thus offers a prime setting for testing the effectiveness of text message reminders on improving client repayment rates.
IPA, in partnership with Microenterprise Access to Banking (MABS) and two rural banks in the Philippines, designed a study to test the effectiveness of text message reminders as a tool for boosting repayment among micro-borrowers. Both banks are for-profit institutions that operate individual-liability microfinance lending programs. All new clients at select branches of both banks who had provided cell phone numbers to the bank and who availed of these loans during the study period were automatically enrolled in the study. MABS, a national initiative established to expand financial services, provides technical assistance and training to local banks.
Description of Intervention:
IPA randomly assigned approximately 1,259 new borrowers who had just received their first loans from their respective banks into a comparison group or one of 12 treatment groups (with various combinations of timing, framing, and personalized messages). Beyond assessing the overall impact of text reminders, the study was designed to explore the importance of timing, framing and personalization of the text message reminders. Regarding timing, researchers explore whether messages received two days before the due date, one day before the due date, or on the due date itself prove to be the more useful for reminding borrowers to pay. Secondly, the framing, or psychology, of the message sent was varied between emphasizing either the benefit of compliance or the cost of non-compliance to motivate repayment. Finally the importance of personalizing the text message was assessed by comparing messages with the account officer’s name with those containing the client’s name.
Over the course of 16 months between January 2009 and April 2010, cell phone numbers and payment due dates were submitted by the three partner banks on a weekly basis to an automated text message application that sent the assigned text message to borrowers on the appropriate date. All loans required payments on a weekly basis, and the average loan term at the Rural Bank of Mabitac was three months, while the average loan term at Green Bank was six months.
Following the enrollment of clients into the study, IPA analyzed bank data through June 2010 to examine differences in repayment rates, instances of default, and late payments across the 12 treatment groups. IPA also analyzed the cost of the text message system to the banks, taking into account loan officer time, cost of the software development, and administrative costs.
In many developing countries it is common for street vendors or small-scale entrepreneurs to borrow small amounts of money for their working capital at very high rates of interest. Over time, these interest rate payments can amount to a burdensome proportion of a vendor’s take-home profit. But if vendors saved small amounts of money over time, they may be able to build up a buffer of savings large enough to stop the practice of borrowing money from informal lenders. It is unclear, though, whether vendors may persist in borrowing due to lack of information about the benefits of saving and whether a financial literacy invention could benefit these entrepreneurs.
Context:
In urban markets in the Philippines, like the large covered market in Cayagan do Oro, street vendors are prevalent and often borrow from informal moneylenders at high rates of interest. Vendors in this study all ran their own businesses, had a history of indebtedness at interest rates of at least 5% per month over the previous 5 years, and had an outstanding debt of less than 5,000 pesos (US$100). Vendors were included in the study only if they met these conditions and operated a business in or near the public market in Cagayan de Oro. Vendors most often used their loans to expand or maintain their current businesses.
Description of Intervention:
Researchers tested two interventions to help break the cycle of debt. After an initial baseline survey to gather information on history of debt, household consumption and financial literacy, 250 vendors were randomly assigned to one of four groups. They either (1) had their outstanding debt paid off, (2) were given financial literacy training, (3) received both, or (4) received nothing (comparison).
For the debt payoff intervention, researchers gave respondents money equal to their previously reported debt and had them payoff their outstanding balances (an average of about $47). For the financial literacy intervention, researchers developed a script modeled after Freedom from Hunger’s financial literacy module. Partner staff conducted a single financial literacy session with respondents in small groups of about 16 people that focused on the benefits of savings, the long-term costs of repeated borrowing from moneylenders, the value of planning in advance and saving for large expenses, and the advantages of borrowing from formal lenders (like microfinance institutions or banks) at lower interest rates.
A set of follow-up surveys were administered after 1 month, 2 months and 3 months and an endline survey was administered between 19 and 21 months after the baseline survey. The baseline survey was administered in early July 2007 and the endline survey was administered between February and April 2009.
Results:
Results forthcoming. A follow-up study is being conducted to replicate the results, expand the sample, and assess the impact of adding a savings component to the debt forgiveness intervention. This component consists of offering a savings account with no starting fees and initial deposits subsidized by IPA.
By the year 2000, individuals living outside their country of birth had grown to nearly 3% of the world’s population, reaching a total 175 million people.[i] The money many of these migrants send home, remittances, is an important but relatively poorly understood type of international financial flow. Currently, the use of savings services is low among many remittance receivers. Increasing savings has the possibility to mitigate the negative impacts of unforeseen circumstances, such as medical emergencies or economic hardship.
Context of the Evaluation:
In Mexico, the financial intermediary Caja Nacional del Sureste (CNS) observed that it was transferring a large amount of remittances to their clients but that very little savings was captured from this flow of money. At the start of the study, only 38 percent of the sample of remittance receivers had a savings account at the Caja, and only about one half of these clients had actually saved any portion of their remittance.
Details of the Intervention:
In an effort to increase savings among remittance receivers, at the onset of the project, CNS offered a saving account called “Tu Futuro Seguro” (TFS), or “Your Secure Future,” to any remittance receivers in its four branches. The account paid 7 percent annually, compounded every month, with no restrictions on withdrawals or deposits. It had no starting fees but required the client to sign a non-binding agreement to save a predetermined amount of money for every remittance received. The client decided that amount, although CNS suggested US$20, US$50, or US$100, The client could also make deposits from any other source of income. As the name suggests, the account was marketed to clients as an account to save for emergencies, future economic shocks, and future illnesses. Though clients could withdraw funds, they were encouraged to only use the money only for an emergency purpose.
The total sample of 783 remittance receivers were randomly assigned to either the treatment or the comparison group. For clients assigned to the treatment group, the system automatically informed CNS staff to offer TFS product. During their subsequent visits, CNS staff continued to offer the product until clients opened the account. For those who were assigned to the comparison group, CNS staff followed routine process, and did not offer the TFS product.
There were two sources of data to inform the study. The baseline survey, which was administered when clients first arrived at the branch, included questions on poverty, children’s attendance in school and information about remittances (who makes decision about remittances, relationship with the sender, and savings level). Administrative data, including account information such as daily transaction amount, monthly balance, basic demographic information, date to join as a member, purpose of the transaction, remittance amounts, committed saving amount, etc, was also collected from the CNS information system.
Results and Policy Lessons:
Take-up of TFS Accounts: Among the 386 remittance beneficiaries who were randomly assigned to receive the TFS offer, 101 (26.17 percent) opened a savings account. Take-up of TFS was higher among those who live below poverty line. Typically, these people were more likely to be female, with fewer years of education and were more likely to speak indigenous language.
Impact on Savings: The product did not appear to have any significant impact on savings, measured by monthly deposits, monthly withdrawals, and monthly net deposits.
The failure to find significant treatment effects may be partly because of the difficulties encountered during implementation. Upon going to the bank to receive one’s remittance, a proportion was supposed to be set aside by default unless the client asks otherwise. However, this is not what happened in reality. Also, the total sample frame was lower than expected, thus lowering the precision of the results. The sample frame was determined by approaching individuals as they came to CNS to receive a remittance, but fewer individuals came forward than was expected in the study intake time period.
[i]Ashraf, Nava, Diego Aycinena, Claudia Martinez and Dean Yang. “Remittances and the Problem of Control: A Field Experiment Among Migrants from El Salvador,” August 2009.
We evaluate a unique "commitment" savings account, in which individuals restrict their right to withdraw funds until they have reached a self-specified goal. Clients are also given the option to automate transfers from a primary account into the commitment savings account, and given the option of buying a lockbox to store their money, with only the bank possessing a key. The account helped people save more after one year, and increased decision making power for women in the household.
Policy Issue:
A growing literature on intra-household bargaining finds that increases in female share of income, regardless of any other changes, can provide women with more power within the household. This can lead to an allocation of resources that better reflect preferences of women, including education, housing, and nutrition for children. Many development interventions have thus focused on transferring income as a way of promoting empowerment, and argue that these empowerment mechanisms justify increased attention and financing to microfinance institutions (MFIs), perhaps including subsidies. However, there is little rigorous evidence to confirm that expanding financial access and usage can promote female empowerment.
Context of the Evaluation:
Over the past several decades, savings in the Philippines has largely stagnated. In the 1960s, the domestic savings rate was over 20 percent of GDP in the Philippines, making it one of the highest in Asia. At present, the country’s savings rate hovers between 12 and 15 percent – far below the level of savings for most East Asian countries, which ranges from 25 to 30 percent. Low savings are believed to contribute to the country’s slow economic growth compared to the rest of the region. Past studies have led to a belief that Filipinos are consumption-oriented, with little desire or capacity to save. Filipinos are believed to use credit primarily for daily needs, and bankers report that salary deposits are often withdrawn within the same day. However, there is evidence to suggest poor and low-income Filipinos do save, or at least have the capacity to do so, as informal savings mechanisms appear to be widespread throughout the country.
Details of the Intervention:
The Green Bank of Caraga, along with researchers, designed and implemented a commitment savings product called a SEED (Save, Earn, Enjoy Deposits) account. The SEED account provides individuals with a commitment to restrict access to their savings, thus potentially helping with either self-control or family-control issues. Each individual defines either a goal date or amount, and is subsequently unable to withdraw from the account until the goal is reached. Other than providing a possible commitment savings device, no further benefit accrued to individuals with this account: the interest rate paid on the SEED account is identical to the interest paid on a normal savings account (4 percent per annum).
Researchers trained a team of marketers hired by the partnering bank to visit the homes or businesses of existing bank clients in the commitment-treatment group, to stress the importance of savings to them. This process included eliciting the clients’ motivations for savings, and emphasizing to the client that even small amounts of saving make a difference; marketers then offered them the SEED product. Another group of individuals (the marketing-treatment group) received the exact same marketing script, but was not expressly offered the SEED product.
The field experiment sample consists of 1,777 Green Bank clients who have savings accounts in one of two bank branches in the greater Butuan City area, randomly selected for the baseline interview. A second randomization assigned these individuals to three groups: commitment-treatment (T), marketing-treatment (M), and comparison (C) groups. One-half the sample was assigned to T, and a quarter of the sample was assigned to each of groups M and C.
After one year, a follow-up survey was conducted to assess (1) inventory of assets (to measure whether the impact on savings represented a net increase in savings or merely a crowd-out of other assets); (2) impact on household decision making and savings attitudes; and (3) impact on economic decisions, such as purchase of durable goods, health and consumption.
Results and Policy Lessons:
Savings Product Take-up: Twenty eight percent of those who were explicitly offered the SEED product opened an account. After twelve months, about half the clients had deposited money into their account beyond the initial opening deposit, and one third regularly made deposits. It appears that SEED helped about 10 percent of the treatment group to save more.
Impact on Savings Balances: For the commitment savings group, average savings balance increased by 42 percent after six months and by 82 percent after one year. This increase in savings also does not appear to crowd out savings held outside of the participating bank.
Household Decision Making Power: The SEED product leads to more decision making power for women in the household, and likewise an increase in purchases of female-oriented durable goods. The outcome was measured as a decision-making indicator, calculated as the average of responses across nine decision categories (expensive purchases, assistance given to family members, recreational use, etc). Findings indicate that assignment to the treatment group leads to between 0.14 and 0.25 standard deviation increase in a decision making index.
Self-Perception of Savings Behavior: Results also indicate that the SEED product leads women who report themselves as favoring present consumption over future consumption in a baseline survey to self-report being a disciplined saver in the follow-up survey. The results here suggest that commitment features, in particular loss of liquidity combined with sole control of the account, are particularly appealing to people with greater self-control and have positive impacts on female decision-making power.
IPA is working with Mumuadu Rural Bank (MRB) to study the response to and impact of a new account labeling savings product. Working with Susu customers and Susu agents, the study compares the success of this new product with the current Susu savings product. The new savings product has only a psychological difference: it allows the labeling of funds within an account so that deposits can be directed to a specific goal, such as health, education or business savings.
IPA is working with Mumuadu Rural Bank (MRB) to study the response to and impact of a new account labeling savings product. Working with Susu customers and Susu agents, the study compares the success of this new product with the current Susu savings product. The new savings product has only a psychological difference: it allows the labeling of funds within an account so that deposits can be directed to a specific goal, such as health, education or business savings.
Saving is hard for most people, rich or poor, educated or not. Setting aside even small sums of money on a regular basis requires a conscious trade-off between buying something now in favor of achieving long-term goals, and even the most prosperous struggle to translate this intention into sustained savings. Saving may be especially difficult for poor individuals, as daily needs and family obligations may distract attention from meeting savings goals.
Poor individuals not only have less income, but often face additional barriers to savings. They tend to be the least educated about their financial options, have the least access to secure financial institutions and are the least able to afford financial mistakes. Due to a variety of challenges, savings rates are quite low across the developing world and individuals often go into debt to maintain family well-being.
Context of the Evaluation:
Ghana's Eastern Region has a vibrant microfinance sector populated by a wide range of formal and informal institutions, and uniquely characterized by a prevalence of "Susu" collectors: traditional savings collectors who walk a daily path through town to collect Susu, "small small moneys", from their customers. Typically, Susu collectors return the funds to their customers at the end of the month in exchange for one day’s worth of collections.
As banks moved into rural areas, they have formalized Susu collection, paying their agents on commission and not charging their customers a direct fee for the service. Competition between banks is highly visible in the urban marketplaces where Susu agents, clothed in the bright batiks of their respective institutions, fight for the patronage of the same group customers.
Description of Intervention:
Researchers collaborated with Mumuadu Rural Bank (MRB) in the Eastern Region of Ghana to test the impact of a new type of savings account aiming to help clients save by focusing attention on savings goals. The evaluation seeks to understand if a purely psychological savings product, which encourages customers to earmark account funds for a specific financial goal, increases savings rates.
Study participants were active savings customers of Susu agents at Mumuadu Rural Bank in five urban and rural communities across Eastern Region in Ghana. Among them, half were randomly selected to receive an offer of the labeled savings account, while the remaining customers continued to access existing savings services from the bank. The new labeled account shared all the characteristics of the regular Susu account with the addition that customers could “label” funds for particular expenditures, such as buying a house or paying children’s school fees. After labeling the account, customers stated how much they planned to save over the next six-month period. The bank provided each customer with a free passbook that had the personal savings goal written on the front as a reminder.
Mumuadu Rural Bank staff were responsible for maintaining the accounts once they had been opened and Susu agents continued their normal rounds, collecting funds for the labeled account alongside the regular Susu savings accounts. Researchers tracked the take-up of the new product and savings activity over six-months among all participating customers.
Preliminary Results:
Preliminary results found that customers with a labeled Susu savings account show a 31.2 percent increase in total deposits after nine months of account operations as compared to Susu customers without the labeled account. This increase is statistically significant across the five study branches, though the effect size varied in each community.
Over the study period, withdrawals by customers with the labeled account were not significantly higher than customers without the labeled account, indicating that these funds provided a stable source of additional capital for Mumuadu Rural Bank. While customers with labeled accounts showed greater savings rates, there was no difference in their expenditure patterns from regular Susu customers.
Additional data is currently being collected and analyzed to determine if these impacts are sustained and if there are identifiable trends in the timing of deposits and withdrawals.
On average, developing countries have fewer than 20 bank branches per 100,000 adults, and people deposit money at a rate one-third of that in developed countries.[i] This lack of formal financial services, along with many other factors, may inhibit farmers and other entrepreneurs, particularly in rural areas, from increasing savings and investments, and smoothing household consumption. Financial services could help farmers to accumulate funds to purchase tools such as fertilizer which are helpful for increasing production. If barriers to financial services are reduced or eliminated by offering enhanced savings products, what is the impact on the use of different agricultural inputs, farm output, and overall well-being in rural farming households?
Context:
Tobacco is one of Malawi’s primary exports, employing many of the country’s farmers. Income volatility influenced by macroeconomic forces can be particularly harmful to those farmers living near the poverty line, causing households to skip meals and forgo necessary healthcare expenses.
Opportunity International, an international NGO, opened the Opportunity Bank of Malawi (OBM) in 2002 with a license from the Central Bank of Malawi. OBM provides financial services to the rural poor and has partnered with researchers and two private agricultural buyers, Alliance One and Limbe Leaf, to offer enhanced savings products to tobacco farmers.
Description of Intervention:
The study assessed the impact of OBM’s savings programs on the behavior and well-being of local farmers. Farmers were organized in farmers clubs, with an average of 10-15 members, by one of the agricultural buyers. In exchange for group loans in the form of fertilizer and extension services, administered by OBM, the club allowed the commercial buyer to make the first offer on the national auction floor, essentially creating an exclusive relationship. Farmer clubs in this sample were randomly assigned to one of two savings account treatment groups or a comparison group. Clubs in the comparison group received information about the benefits of having a formal savings account. Clubs in the treatment groups received the same information about savings accounts and were also offered individual savings accounts into which proceeds, after loan repayment, would be directly deposited.
Farmers in the first treatment group were offered an “ordinary” savings account with an annual interest rate of 2.5%. Those in the second treatment group received the same individual savings account, in addition to a “commitment” savings account which allows farmers to specify an amount of money to be frozen until a specified date (e.g. immediately prior to the planting season, so that funds are preserved for farm input purchases).
To assess the impact of public information on financial behavior, farmer clubs in both treatment groups were randomly assigned to one of three raffle schemes providing information about club level savings. Raffle tickets to win a bicycle were distributed to participants on two occasions based on savings balances as of two pre-announced dates. One third of farmers received raffle tickets in private, one third received tickets in public when names and numbers of tickets were announced to the club, and one third was ineligible for the raffle.
Results:
Savings Behavior:Twenty-one percent of farmers who were offered a commitment savings product (no raffle), made transfers to their account, while 16% of farmers who were offered the ordinary savings product (no raffle) had their harvest proceeds directly deposited into their individual account, and no farmers in the comparison groups received funds directly in an OBM account. Overall, farmers in the six treatment groups deposited substantial amounts into their individual bank accounts; among farmers who were offered the commitment savings account, most of these deposits were made into the ordinary savings account.
Farmers in the commitment savings group had higher net savings during the pre-planting period, and the commitment savings treatment group overall withdrew more money during the planting season. This finding implies that these farmers were better able to save money and delay consumption until the lean season when food supplies from the last harvest were scarcer. Farmers in the ordinary savings group did not experience an increase in net savings during the pre-planting season, or an increase in withdrawals during the planting season, suggesting they were not able to smooth consumption as effectively.
Inputs, crop sales, and expenditures: In relation to those in the comparison group, farmers who were offered commitment savings accounts had more land cultivated, higher value of inputs, and greater value of harvest at a statistically significant level. These commitment savings farmers cultivated .42 more acres of land (compared to an average of 4.3 acres of land in the comparison group) and used 26% more inputs. This increase in land under cultivation and inputs used by the commitment savings group led to a 22% increase in value of crop output above the levels in the comparison group. Finally, farmers in the commitment treatment group increased total expenditures reported in the last 30 days by 17%. Overall, farmers in the ordinary savings group did not have outcomes that were different from those in the comparison group at a statistically significant level.
Evidence suggests that the positive results in the commitment savings group were not due to helping farmers solve self-control problems since most money accrued in ordinary savings accounts and actual commitment account balances were low. There was also no direct evidence that the results were derived from farmers keeping funds from their social networks. Psychological phenomena such as mental accounting may be behind the impact of the commitment accounts. However, the current study does not empirically test this hypothesis and psychological mechanisms are addressed in future research. Results from the public and private raffle treatments were inconclusive.
Researchers ask whether sending regular text messages reminding clients to save can encourage Filipino account holders to increase their balance.
Policy Issue
With little money to spare, the poor are particularly vulnerable to the income shocks associated with unexpected events such as natural disasters or health emergencies. Many households facing these unexpected costs may be forced to take on debt or sell assets to remain afloat. Those with access to accumulated savings, however, may be better able to maintain constant consumption levels and avoid more drastic measures. Of course, savings is not only useful in times of emergency: many microfinance clients borrow repeatedly as a way of getting liquid cash, and some women always having loans outstanding. Savings may provides a cheaper (interest free) way for microentrepreneurs to finance business investments. Access to formal financial services is increasing, but many households in the developing world still do not have a savings account, or do not use the one they have. Though many people express a desire to save more, little is known about the best way to encourage people to follow through on that desire to save.
Context
For a variety of reasons, the poor in the Philippines are underserved by traditional banks. Many live far from bank branches or are unable to meet minimum deposit requirements to open an account. But despite high levels of poverty, cellphones are extremely prevalent. Sixty percent of all Filipinos are estimated to be mobile phone subscribers and the total number of text messages sent everyday to phones in the Philippines was averaged at 1 billion in 2007. Even among poor households, cell phones can be an essential communications tool and many Filipinos send and receive text messages regularly. This unique situation, with a combination of a very high penetration of mobile phones and relatively low penetration of banking services, offers an opportunity to test whether text message reminders can influence savings behavior.
Description of Intervention
The First Valley Bank designed a savings product to allow clients to commit to savings and avoid spending saved funds. Clients who opened the “Dream” savings account were given a small box into which they could insert coins, but which only bank staff could open to take the coins out. The client could take the box to the bank, where the contents would then be deposited into the client’s account. Clients were restricted from withdrawing from their accounts until they had reached a certain “goal amount” and after a certain maturity date.
The principle intervention consisted of sending periodic text messages to a subset of randomly chosen savings account clients. Half of the clients receiving reminders received positively framed messages, which emphasized that the client’s dreams would come true if she continued to save money, while the other half received negatively framed messages, which emphasized that those dreams would not come true if she failed to save. A third group, the comparison group, received no “reminder” text messages.
An independent randomization assigned some clients to receive “late” text message reminders, regardless of whether or not they had already been assigned to receive a regular reminder. This late deposit reminder was only activated if the client failed to make their monthly deposit. These lateness reminders also varied between loss and gain wording, emphasizing either the gain or achieving one’s dreams or the loss of failing to achieve them.
Results
As a part of a cluster of savings experiments conducted in the Philippines, Bolivia, and Peru, results indicated that receiving a reminder increased the total amount saved in the reminding bank by 6.3%. Clients randomly assigned to receive some form of reminder were also 3.1% more likely to reach their savings goal by the goal date.
There was no evidence of a difference in the savings rates of clients receiving positively-framed versus negatively-framed reminders or late versus regular reminders.
Lowering costs via ATM cards significantly increased the use of savings bank accounts owned by men and accounts jointly owned by men and women. In contrast, savings accounts owned by women with low household bargaining power were used significantly less when ATM cards were provided.
Policy Issue:
Transaction costs such as account opening, maintenance, and operating fees pose significant barriers to the adoption of formal savings by the poor. Recent evidence on commitment savings, however, suggests that individuals may actually benefit from some transaction costs on savings accounts: Both internal and external constraints to saving such as time inconsistent preferences (valuing present over future consumption) and pressures to share resources with other members of the household and community may be reduced when money is locked away and costly to access. These observations raise a number of unanswered questions about the savings behavior of the unbanked: Would making formal sector accounts cheaper and more convenient substantially increase use of these accounts? Would the use of the savings account vary by account type (individual versus joint) or identity of the account owner (husband or wife)? To inform product design, this project aims to understand how the poor respond to reduced transaction costs on formal savings accounts.
Context of the Evaluation:
ATM cards are a common tool for reducing bank account transaction costs in the developed world as they facilitate withdrawals and, in some cases, are associated with reduced fees. This randomized evaluation assesses the impact of providing ATM cards for savings account holders in Western Kenya. While formal financial services in Kenya have traditionally been outside the reach of the poor, banks have recently begun to offer lower cost formal savings products marketed to a broader swathe of the population. This project was implemented in collaboration with Family Bank, a formal bank in Kenya that offers products suitable for lower income savers. All study participants were offered Family Bank’s Mwananchi account, which has no recurring fees, a minimum balance of $1.25 US, and no deposit fees. Withdrawal fees are $0.78 US without an ATM card and $0.38 US with an ATM card. The account does not require the purchase on an ATM card, which costs about $3.75 US. In addition to reducing withdrawal fees, the ATM card enables account holders to make withdrawals at any time of the day.
Description of the Intervention:
Seven hundred forty eight low-income married couples were given the opportunity to open up to three accounts with Family Bank of Kenya: a joint account, an individual account for the husband, and an individual account for the wife. Each account was randomly assigned a temporary 6-month interest rate, which ranged from zero percent to 10 percent. Altogether, these couples opened 1,121 accounts. One quarter of the opened accounts were randomly selected to receive a free ATM card. The cost of the card was prohibitive for the vast majority of the study participants – consequently the “free ATM” treatment increased ATM card take-up from around 7 percent to 100 percent.
In addition to survey data from one-on-one baseline questionnaires administered during group sessions (which collected basic demographic information, as well as information on individual discount rates and time inconsistency, decision making power in the household, income, and current use of a variety of savings devices.), administrative data on bank account use was also collected for the first six months following account opening.
Preliminary Results:
Early results based on six months of administrative account use data show relatively low usage of formal accounts. Even though all couples included in the study reported that they were interested in opening a savings account with the bank, just 27 percent of the couples who opened accounts had saved in at least one of their new accounts after six months. Results indicate that lowering costs via ATM cards significantly increased savings rates (by 8 percentage points) and average daily balances (by 23 percent) in bank accounts owned by men and accounts jointly owned by men and women. In contrast, accounts owned by women with low household bargaining power were used significantly less when ATM cards were provided.
These results imply that lowering transaction costs to formal savings will increase access for many savers. However, the findings also suggest that transaction cost saving technologies that make account balances easier to view and access may favor individuals who have more bargaining power within the household, and that incorporating additional security features into transaction-cost reducing technologies (such as biometric scanning) may be a promising way of both reducing costs and making accounts more attractive to individuals with weaker bargaining positions in the household.
A follow-up household survey will be conducted to (1) assess the longer run impacts of ATM cards, (2) determine whether the initial results reflect changes in total savings or substitution between different savings devices, and (3) delve more deeply into the results pertaining to bargaining power and women's account use.
This project will evaluate the impact of commitment contracts and reminder messaging on savings behaviors among low- and medium-income credit union members in Washington DC. Traditional financial products which dominate the consumer finance market tend to operate under the assumption that consumers act in a rational manner and fail to take into account cognitive biases which can impede the realization of financial goals. Here we test a savings product that includes two features designed to overcome these biases. A built-in commitment contract attempts to encourage consumers to forego present expenditures in lieu of future payoffs. Regular messaging attempts to overcome limited attention, which may result in an inability to stick to a budget or savings plan.
To understand the potential gains from formal banking, we must first understand the risks and returns that the poor face from financial-service options in the informal sector. Yet, while informal financial products dominate the financial lives of the poor, we have scant data and analysis on either informal savings or informal debt. This project aims to fill that gap by collecting detailed information on a range of informal financial vehicles from countries across various regions of the world.
To understand the potential gains from formal banking, we must first understand the risks and returns that the poor face from financial-service options in the informal sector. Yet, while informal financial products dominate the financial lives of the poor, we have scant data and analysis on either informal savings or informal debt. This project aims to fill that gap by collecting detailed information on a range of informal financial vehicles from countries across various regions of the world.
Policy Issues:
This study aims to improve our understanding of several long-standing puzzles about the demand and supply of both informal moneylending and savings.
Informal Moneylending
Although MFIs and other formal financial institutions now offer and deliver loan services to the poor, many of these poor still continue to access capital informally, notably from moneylenders. Often referred to as “loan sharks”, informal moneylenders are frequently criticized for lending money at exorbitantly high interest rates and preying on poor people in dire situations. Are the observed high interest rates actually usurious, or do they simply reflect high lending costs? Which characteristics of informal loans account for the fact that even in areas with high formal finance saturation, informal lending is still prevalent? What are the characteristics of informal lending models? The fact that we are not as of yet capable of confidently answering these important questions points to a knowledge gap. This lack of systematic data across many countries in the developing world to facilitate studying informal loans and comparing them to their counterparts offered in the formal sector is at odds with the fact that informal financial products dominate the financial lives of the poor. The study aims to collect accurate information by using innovative survey instruments, to compare the costs of formal and informal lending services available to the poor.
Informal Savings
Poor households typically use a myriad of informal financial mechanisms to satisfy diverse financial needs. However, informal financial options alone are unable to meet all of a household’s savings needs, and households often report that having access to a savings account is their greatest financial need (Kendall, 2010). Informal schemes often entail high risk and as a consequence tend discourage medium and long-term accumulation. Few existing studies analyze the risks and returns of using informal financial tools, and the factors that influence behaviors in different contexts.One of the reasons for this dearth in knowledge is the difficulty in collecting accurate information. This explorative study aims to create and test high-quality instruments to collect both quantitative and qualitative data about informal savings practices, in order to analyze the contours of demand in these markets, evaluate the risks and returns that the poor face when using the products offered to them, and understand the heterogeneity in informal savings arrangements around the world.
Context of the Evaluation:
Seventeen summer interns spent three months into the field in several developing countries - Bangladesh, India, Philippines, Peru, Ghana, Malawi, Mali, Morocco, Rwanda, Ethiopia, Tanzania, Uganda and Senegal - in order to collect quantitative and qualitative data. Of this group, six of them participated in the third year of ongoing research about informal moneylending, while the remaining eleven started up an explorative study about informal savings, taking the first steps for further research.
Details of the Intervention:
Informal Moneylending
From 2009 to 2011, IPA has been gathering data in eleven countries on the business practices of informal moneylenders operating in both urban and rural areas. The crux of this work has been qualitative surveys of moneylenders and their clients with a focus on activities and business cycles. In the spring of 2011, we conducted pilot studies to test various methods of tracking the daily activities of informal lenders, such as in-person shadowing, asking lenders to maintain daily diaries, text-message communication, and other technology-based instruments. These ongoing methods returned more accurate data than self-reported surveys.Over the summer of 2011, we expanded the information-gathering process, resulting in a more precise measure of the direct and opportunity costs of informal lending. Additionally, we interviewed formal financial organizations, which compete with informal services in order to further understand the relative costs and benefits of different forms of finance. These interviews covered organizations such as MFIs, banks, and other loan associations. In the process, information on ROSCAs and other informal loan and savings vehicles was also collected.
Informal Savings
2011 was the first year of data collection on informal savings. In each country,interns visited three areas - rural, semi-urban and urban - and interviewed several respondents from different backgrounds, with the goal of developing an understanding of how the poor manage household income and expenditure flows, in terms of how they make decisions, which savings instruments they use and what their costs and returns are. The information was gathered both through informal interviews and a structured survey instrument, the latter being piloted all along the summer. It was continually updated with improvements and will serve as a basis for further research.
In Summer 2012 we conducted a second wave of data collection. Sixteen interns conducted research on informal savings in eleven different countries using quantitative and ethnographic methodologies. In the quantitative component, interns interviewed respondents from a representative sample to develop an understanding of which informal and formal savings instruments people use in each country, and assessed what are the costs, risks and returns associated with each of these instruments. The information was gathered through a structured survey instrument that was piloted in the beginning of the summer. In the ethnographic component, interns conducted a mix of immersion, observation, semi-formal interviews and focus groups in order to further understand savings behavior in the study locations. Interns focused in particular on research gaps that had been highlighted in the context of existing projects.
By adding a component of gender discussion to Village Savings and Loan Associations (VSLAs) and including males in the proposed intervention, this study assesses the potential for improving the physical, social and economic outcomes for women in Côte d’Ivoire. Does including men in gender discussions in the context of financial decision-making help to reduce gender-based violence and increase economic outcomes for women?
Policy Issue:
Gender-based violence toward women and girls represents a violation of human rights and organizations like the International Rescue Committee (IRC) are actively engaging in rigorous research to determine the most effective ways to reduce this abuse. Evidence from South Africa suggests that combining gender dialogue components to economic interventions can reduce partner violence.[1] Another program tying discussions of household dynamics to regular microfinance groups in Burundi also yielded promising findings[2]. While many programs that aim to reduce women’s exposure to gender-based violence focus solely on women, few interventions incorporate males to change their attitudes toward gender and their roles in the perpetuation of violence. This study addresses the potential to reduce gender-based violence within the post-conflict context by supplementing economic programs with a gender-training component for men and women.
Context of the Evaluation:
Côte d’Ivoire has experienced two civil wars in the past decade, most recently in November 2010 after a disputed presidential election. As of May 2011, the country has returned to a period of peace and internally displaced peoples (IDPs) are slowly returning to their homes. A recent report from Oxfam, Care and the Danish Refugee Council highlighted the potential humanitarian crisis IDPs represent in Cote d’Ivoire—over 450,000 Ivoirians remain displaced inside Côte d’Ivoire and abroad. About 58% of returnees and 82% of displaced Ivoirians report complete loss of revenue streams, and these populations remain highly susceptible to attacks, harassment and intimidation.
As part of its mission to respond to humanitarian crises and help post-crisis communities rebuild, the IRC uses Village Savings and Loan Associations (VSLAs) to increase savings opportunities and capital accumulation for self-selected groups of men and women. VSLA groups are composed of 15-30 community members who decide to contribute to a collective savings fund that members can borrow from, with the loan interest allowing the fund to grow over time. VSLA groups agree collectively on a payout date, when all members will receive a share of the common fund plus interest. The IRC provides initial training and resources such as a lockbox and notebooks, meaning that administrative costs are low and decision-making is driven entirely by the VSLA itself.
Description of the Intervention:
This study assesses the impact of a socio-economic program and discussion group on the incidence of physical and sexual violence and women’s individual agency. A randomized evaluation will be conducted in 24 villages across Côte d’Ivoire, reaching 48 newly-established VSLA groups. Village groups will be randomly assigned to either a treatment arm (gender dialogue program in addition to the VSLA program) or a comparison arm (VSLA program only). Women will be surveyed before and after the program is completed, while men will be invited to participate in in-depth qualitative interviews. Additional midline quantitative and qualitative data collection activities were added to capture changes in household well-being as a result of the post-election instability in late 2010 and early 2011.
Gender dialogues will be facilitated through the IRC’s current structure for VSLA groups. In addition to regular VSLA activities, groups assigned to the gender dialogue treatment will encourage men and women to discuss the processes by which economic decisions are made within the household and their current systems of control over household resources. By challenging gender norms within the dialogue groups in the context of savings and spending decisions, women’s position in the household may be strengthened over time.
While savings research shows the promise of access to savings for specific demographics, i.e. entrepreneurs & members of ROSCAS, as well as through commitment devices, there is little evidence on impact of a simple savings account on the general population.
Policy Question:
The potential benefits of a formal savings account are manifold and include improved ability to cope with shocks, asset accumulation and space to plan for the future. There has been promising though limited evidence to date on the potential of access to savings accounts for the poor. Additionally, such studies have thus far focused on specific subsets of the population such as entrepreneurs or, for commitment savings studies, existing clients of a bank or microfinance institution. The current literature lacks studies that consider how generally poor households behavior changes when offered access to financial markets through a savings account.
Context of the Evaluation:
This study takes place in Pokhara, Nepal in 19 areas commonly referred to as slums. The slums, which are actually permanent settlements, vary in population from 20 to 150 households. At the time of the study baseline, households in these areas had an average weekly salary of 1,600 Nepalese rupees, roughly $20 USD. Study participants were involved in the agricultural and construction industries among others, engaged in activities such as collecting sand and stones, selling produce, and raising livestock.
Researchers are collaborating with a local NGO Good Neighbour Service Association (GONESA) to assess the impact of a new savings product.
Description of the Intervention:
A baseline survey was administered to 1,236 households with female heads between the ages of 18 and 55. Shortly thereafter, public lotteries were held to randomly assign survey participants to either a treatment or comparison group. Those in the treatment group were offered the opportunity to open a new formal bank account at a local branch of the partner NGO, GONESA while participants in the comparison group could not open accounts with GONESA.
The account itself operates like any formal savings account without any commitments to save. The bank-branch offices in the 19 slums are open twice a week during according to an established schedule. Customers cannot make deposits or withdrawals outside these operation hours at the bank-branch level but they can visit the bank's main office at the city center all days of the week. The bank accounts have no opening or transaction fees and pay 10% annualized interest rate to customers.
Four months after GONESA started offering the savings accounts, an endline survey was administered to both the treatment and comparison group participants to collect data on consumption levels, financial behavior, and assets accumulation, among other indicators. A second endline survey was conducted about one year after the after the initial product offering and a third follow-up will be administered next year. Household surveys are complemented with administrative data from GONESA's bank on savings account usage at the individual level. The data includes date, location, and amount of every deposit and withdrawal.
Individuals in developing countries are often subject to considerable financial risk, but most lack access to formal financial services that would allow them to insure themselves against unexpected income shocks like medical expenses or natural disasters. Instead, households often use informal systems of gifts and loans from friends or family to cope with large unplanned expenses. While these informal networks do provide some protection against shocks, they can also face problems of information asymmetry and payment enforcement. Many individuals may therefore attempt to cope with risk within the household where information sharing and enforcement are presumably easier. Whether intra-household insurance mechanisms are effective in insuring against risk remains, however, an important question. If members of a household do not insure each other against risk, then programs which impact the ability of individuals to cope with risk (such as formal savings accounts or microinsurance programs) could substantially increase people’s welfare.
Context of the Evaluation:
The towns of Busia, Sega, and Ugunja in Western and Nyanza Provinces of Kenya are semi-urban areas located along a major highway. Though many people in the area earn their living from agriculture, a substantial fraction earns at least some income from self-employment. The individuals in this study were drawn from a group of daily income earners (men who work as bicycle taxi drivers - called boda bodas in Kiswahili - and women who sell produce and other items in the marketplace). Daily income earners were targeted in this study because their informal employment made them more susceptible to transitory income shocks.
A very small minority of the sample had access to formal savings: just 2 percent of men and 1 percent of women had savings accounts. However, informal savings and credit sources were common. Sixty-three percent of men and 44 percent of women participated in Rotating Savings and Credit Associations (ROSCAs) -a group of individuals who make regular cyclical contribution to a fund, which is then given as a lump sump to a different member at each meeting. Men and women were equally connected to informal credit groups (around 90 percent of both men and women received a loan in the past year and around 85 percent gave a loan).
Description of Intervention:
This study presents results from a field experiment in Kenya designed to test whether intra-household risk-sharing mechanisms (such as financial transfers within the household) operate efficiently. One hundred and forty-two married couples were followed for eight weeks. Every week, each individual had a 50 percent chance of receiving a 150 Kenyan shilling (US$2) income shock, equivalent to roughly 1.5 days’ income for men and 1 week’s income for women. As these shocks were, by definition, random, the experimental design made it possible to test for efficiency by comparing theresponsiveness of private consumption to shocks received by an individual and to those received by his spouse. Assuming that household members were risk averse, failing to insure temporary shocks (such as those administered in this study) would leave potential gains from trade unexploited. For example, if a woman is sick, without insurance (i.e. a transfer from her spouse), she may be unable to see treatment and subsequently will be unable to work and make a daily income, and to fulfill her responsibilities as caregiver for her family, producing inefficiency in the household. If the household pooled risk efficiently, increases in private consumption should be the same for shocks received by an individual and those received by their spouse.
The shocks were announced to each spouse, so that it was not possible for one member of a household to hide an income shock from the other. Payments were made privately, however, and individuals were told that they could spend the money however they chose.
Each week both spouses were visited separately by a trained enumerator who administered a detailed monitoring survey that included questions on consumption, expenditures, income (and income shocks), labor supply, and transfers given and received over the previous seven days. In addition, a background survey and a survey to measure risk aversion were administered.
Results and Policy Lessons:
The study rejects the unitary theory of the household which suggests that the household behaves like a single decision maker, and the collective model of the household in which members fully insure each other against shocks. In weeks in which they received the shock, men spent, on average, 16.9 percent of the increase on private expenditures. However, private expenditures did not change in weeks in which their wives received the shock.
In contrast, for women, private expenditures did not respond to shocks (received either by herself or her husband). Women did, however, transfer 16.3 percent of the shock to their husbands, whereas husbands transferred none of their shock to their wives.
If people spend windfall income differently than their regular labor income, the results may not be generalizable. The researcher addresses this possibility by examining how private expenditures respond to weekly fluctuations in labor income and finds that both men and women increase private expenditures in weeks in which their labor income is higher. This suggests that the experimental findings were not necessarily specific to the experiment.
While the welfare consequences of failing to insure small shocks over a short time period are not likely to be very large, they suggest that intra-household risk-sharing mechanisms are ineffective, which could have important welfare effects. Overall, the findings suggest that programs which provide more formal risk coping mechanisms could have large effects on household welfare.
This project will evaluate the effectiveness of innovative decision-making devices based on lessons from behavioral economics and psychology. Financial outcomes in retirement are the product of a lifetime of decisions. For many households, the most important financial decisions involve borrowing, not saving. Rather than the rational creatures that standard economic models of behavior assume, humans are subject to numerous biases that may impede our abilities to make good choices. This project will use successes from United States and developing countries to implement behaviorally-motivated interventions for helping U.S. consumers reduce their reliance on credit card debt and increase savings, with an eye towards the importance of early retirement planning.
Poor and underemployed youth can be found at the hearts of riots, revolutions, civil wars, and petty and organized crime. In post-conflict countries, where state capacity is weak, frustrations are many, and jobs are few, policymakers are particularly concerned about these youth’s potential to destabilize society. Liberia, which recently suffered through 14 years of civil conflict, has named “youth disempowerment” as one of two major threats to durable and lasting peace. Liberia’s2009 Youth Fragility Assessmentsums it up this way: “the youth… simply wish for… the prospect of some day earning an income, even a modest one. For many, this is the impossible dream... the challenge is to make it possible, soon and for everyone.” The stakes are extremely high. The World Bank writes: “while much of the world has made rapid progress in reducing poverty in the past 60 years, areas characterized by repeated cycles of political and criminal violence are being left far behind….," and calculates a civil conflict costs the average developing country roughly 30 years of GDP growth. A quarter of the world’s population (1.5 billion people) live in places plagued by recurring and endemic violence.
How can governments and NGOs raise employment and reduce the risk of violence among these poor and risky populations? Aid programs increasingly focus on helping youth through markets, especially through microenterprise development. The logic of this assistance, however, rests on the existence of market failures among the poorest of the poor: imperfect credit markets, or production discontinuities such as minimum start-up costs or low returns to small investments. Cash grants or credit are needed to achieve minimum scale. Street youth with no assets and weak social networks may be particularly vulnerable to this trap. But so far there has been little research proving the existence of market failures or the ability of aid to help.
Meanwhile, both psychologists and economists have begun to explore the extent to which behavioral skills – such as impulse control, time preferences for immediate vs. delayed gratification, risk aversion, conscientiousness, setting and keeping long range goals, and being deliberate in choices – contribute to poverty. In a war zone, being highly present-focused might indeed be the optimal survival strategy. During peacetime, however, the absence of such preferences could in theory constitute a second source of persistent poverty: a behavioral poverty trap, leading to low savings rates, wastage of any windfalls, and high-risk behavior including involvement in drugs, crimes, and violence. Importantly, core principles underlying much economic and psychological theory assume that such preferences are fixed in young adulthood, leading anti-poverty projects to take a paternalistic approach. Again, little research has critically examined these assumptions.
Counter to conventional wisdom, preliminary investigation suggests that a behavioral transformation program, akin to cognitive behavioral therapy, can be successful. This finding, if true, would be groundbreaking, challenging conventional economic and psychological models of behavior, which posit that preferences and behaviors are stable and difficult to change, especially among adults.
Context of the Evaluation:
The study is designed to disentangle how cash and capital constraints versus dysfunctional preferences and behaviors contribute to the poverty and violence of the young men and women living on Monrovia’s streets, and to create an inexpensive and scalable program that will reduce poverty, violence, and social instability among unstable youth in Liberia and beyond.
On the preferences and behaviors side, the questions are (a) What role do cognitive and behavioral traits play in persistent poverty and violence?; (b) Are these cognitive and behavioral traits malleable in adulthood, and is sustained cognitive behavior change possible?; and (c) Will changing them reduce poverty and violence? On the market failures side, the questions are (a) What role does the lack capital and credit play in persistent poverty and violence?; (b) Will unconditional cash transfers relieve this constraint and reduce poverty and violence?; and (c) Do capital constraints and cognitive and behavioral deficiencies interact, and must both constraints be relieved to reduce poverty and violence in sustained way?
Description of the Intervention:
This “Sustainable Transformation for Youth in Liberia” (STYL) program is an experimental program, being jointly run by the research team and two NGO partners: CHF International and NEPI. As of mid-2012, STYL will have enrolled approximately 1,000 youth. Youth are recruited from urban areas where large numbers of underemployed youth congregate, and are targeted for the program on the basis of exhibiting the following characteristics: persistently poor; homeless; lack of self-discipline; angry, hostile, depressed; idle and not busy with productive pursuits; involved in organized or petty crime, and/or conflict with the law; and getting drunk and/or high regularly.
The STYL study is currently experimentally evaluating two interventions, each on its own as well as in concert with the other.
A behavioral Transformation Program (TP), akin to cognitive behavioral therapy (similar to Alcoholics Anonymous) and life-skills programs. The TP has the aims of bolstering the cognitive and social skills necessary for entrepreneurial self-help, raising youth’s aspirations, and equipping the youth to reach them. The TP involves half-day sessions 3-times a week, for 8 weeks, held in groups of 20 led by 2 counselors. The curriculum includes modules on anger management, impulse control, future orientation and planning skills, and self-esteem.
An unconditional cash grant program, in which youth are given a large $200 one-time cash grant disbursement. How the grant is spent is entirely up to the recipient, though a grant orientation session provides some basic training on financial management and business planning.
Individual youth are randomly assigned to either receive the TP; the cash grant; the TP and then the cash grant; or neither.
The plan is to conduct both short-term and long-term endline surveys to capture treatment effects, through surveys and behavioral games. If the basic interventions are shown to be effective, the research team hopes to further improve program design through iterative tweaking and testing, including varying cash grant size and TP length and intensity, and trying additional potentially complementary interventions, in order to help policymakers achieve goals most cost-effectively.
Savings can provide a safety net for the poorest, allowing them to create a cushion against risks, build assets for their future, and smooth income during periods of low income. However, the majority of the world’s poor does not have access to formal savings mechanisms, and instead are forced to save informally through such methods as hiding money in their homes, or purchasing assets such as jewelry and livestock. These methods tend to be risky, inefficient and costly. In addition, there has been very little research on how to design appropriate products taking into accoun
Savings can provide a safety net for the poorest, allowing them to create a cushion against risks, build assets for their future, and smooth income during periods of low income. However, the majority of the world’s poor does not have access to formal savings mechanisms, and instead are forced to save informally through such methods as hiding money in their homes, or purchasing assets such as jewelry and livestock. These methods tend to be risky, inefficient and costly. In addition, there has been very little research on how to design appropriate products taking into account the specific needs of the poor and to incentivize more disciplined savings behavior.
Context of the Evaluation:
The proposed intervention is based on the idea that individuals do not foresee events in the future and thus do not save for those expected needs in the present. As a result, mechanisms to remind clients in a frequent and timely manner to save now, such as a text message after a pay-period, may improve the ability of clients to consider future needs, stall unnecessary consumption in the present, and consequently save for the future. Salient and timely reminders can refocus attention from current activities to investment for longer term goals and lead to improved client savings behavior.
FINCA Ecuador is one of many microfinance institutions (MFIs) that provides financial services to the Ecuador’s lowest-income entrepreneurs so they can create jobs, build assets, and improve their standard of living. These services include microenterprise loans, health and home insurance, and health services via third party providers for clients and their families. More recently, FINCA Ecuador became a regulated bank and, as a result, is required to offer savings services to its clients.
Description of the Intervention:
The study sample of 2700 clients was drawn from FINCA’s database of existing savings clients with cellular phone information and new clients who opened accounts during the first five months of the study. Baseline data was collected from new clients at the moment they opened the account. The baseline survey collected information such as current financial activity, savings goals, and banking preferences (i.e. preferred banking hours/days). Eligible clients were required to have a cell phone but were not required to have a certain income or savings balance, apart from the minimum balance required by FINCA to open an account. After the baseline data was collected, clients were randomly assigned to a treatment or comparison group. Clients in the treatment group received text message reminders to save via cell phones. The messages varied across several dimensions, including (a) Frequency: the interval at which messages are sent e.g. weekly vs. monthly (b) Duration: the length of time over which the messages are sent e.g. two months vs. four months (c) Timing: the moment at which the messages are sent e.g. time of day (morning vs. afternoon) or day of the week (Monday, Wednesday, Friday) (d) Content: the substance of the message e.g. phrasing of text. The messaging intervention lasted for eight to ten months depending on the treatment. Frequency of deposits and average account balances, as well as, bank transaction data during the intervention period was collected for the entire sample.
In addition to the lack of banking infrastructure, many other constraints limit the availability and effectiveness of savings services for the poor. There has been very little research to map the demand for services so that products can be designed with clients’ needs and cash-flow in mind. These constraints in the supply and demand for savings service point to the need for specialized market research and product development efforts. Efforts to unveil the actual needs and perceptions of low-income clients to better devise products and incentives for them may result in more rigorous savings behavior.
The proposed intervention is based on the idea that individuals do not foresee events in the future and thus do not save for those unexpected needs in the present. Furthermore, individuals lack a safe place to save money temporarily and require a means to curb impulsivity. As a result, mechanisms to remind clients in a frequent and timely manner to save now, such as programmed alarms and lockboxes that do not allow for easy access to these savings, may improve the ability of clients to take future needs into account, stall unnecessary consumption in the present, and consequently change savings behavior.
Context of the Evaluation:
Although the gross domestic savings rate in Bolivia in 2009 averaged about 20 percent of the country's GDP, on par with its neighbors (Peru at 26 percent and Ecuador at 21 percent), Bolivia’s savings rate has been historically much lower than those of other countries in Latin America, and access to savings services is severely constrained among the poor.1 Given the predominance of microfinance institutions (MFI) in the financial services sector in Bolivia, the responsibility of generating savings products and services for the poor generally falls on these institutions. Increasingly, due to the commercialization of the sector in Bolivia, the capturing of savings has become a major driving force behind MFI sustainability and growth.
Ecofuturo is a for-profit Bolivian microfinance institution that operates in many regions of Bolivia. Ecofuturo offers an array of individual credit, insurance, and savings products. These savings products range from basic non-programmed accounts to more complex commitment accounts that require the client to meet deposit quotas in order to qualify for rewards, such as higher interest rates. Working with Ecofuturo, IPA developed an innovative lockbox with a daily alarm that can only be turned off by depositing money. The lockbox acts as a psychological barrier to impulsivity by requiring its owner to visit the local bank branch where designated bank staff keep the key. By incorporating the use of alarms to the already familiar concept of lockboxes (i.e. piggy banks), IPA will test the impact of a technology that is both simple and cost-effective. The alarm acts like a reminder, not unlike a text message reminder to a cell phone, but over a period of time could prove to be more cost-effective and relevant for those who do not have access to a cell phone.
Details of the Intervention:
IPA first tested the alarm box with a small pilot sample with plans to launch the product to approximately 800 Ecofuturo clients to evaluate its impact on savings behavior. In total, IPA will work with 2400 existing savings account holders. Two-thirds of the clients will be randomly selected to get an offer of a lockbox, and of those clients, half will be offered boxes with alarms. The remaining group of clients will serve as a comparison group. The impact of an information wheel that clients can use to determine daily savings amounts required to ascertain a goal in a given time will also be assessed. Within each of the three groups (comparison, lockbox, lockbox with alarm), half of the clients will be randomly selected to receive the wheel. Savings rates and frequencies will be measured amongst treatment and comparison groups after approximately one year.
Many argue that increasing financial literacy among poor households would increase usage of financial products, and savings products in particular. However, this theory raises an immediate question: if financial literacy increases take-up of savings products, why don’t banks and microfinance institutions include financial literacy materials in their advertising? One explanation for this relative lack of “informational advertising” or use of financial literacy materials is that banks cannot capture all of the increase in savings product use from the advertising (i.e. there are spillovers). The informative advertising may make customers more likely to use savings products in general from any firm, thus the bank conducting the marketing may not benefit. Another method, referred to as “persuasive advertising” that tries to convince the customer that a particular firm is superior may be a more effective means of promoting a particular bank’s products. This study assesses the impact of both informative and persuasive advertising to better understand the role of financial literacy in savings product take-up.
Context of the Evaluation:
This project takes place in Cagayan de Oro City, a sprawling city of more than 550,000 people in Northern Mindanao, Philippines. Study areas are urban or peri-urban, including informal settlements with tenuous land rights and areas that are frequently affected by flooding. The majority of respondents live below the poverty line, and, during the baseline, only half reported having a household member with salaried employment. Common occupations in these areas include construction work, driving jeepneys, tricycles, or pedicabs, and operating small neighborhood stores or eateries. Nearly half of the respondents surveyed reported never having saved with a formal financial institution, though a majority said they have saved at home, and some through informal savings mechanisms. At the time of the project launch, commitment savings accounts were available at both partner banks, Green Bank and First Valley Bank, but few respondents reported using the bank for any purpose. Green Bank offers the SEED Commitment Savings Account, while First Valley Bank offers the Gihandom Savings Account.
Description of Intervention:
This evaluation assesses the impact of two types of advertising campaigns on savings product take-up. First Valley Bank and Green Bank of Caraga hired teams of marketers to implement a new advertising campaign promoting the banks’ commitment savings products.
The target sample, households in 12 barangays close to both partner banks (within two regular-priced rides using standard local transportation, 14 pesos or approx. 30 US cents) were given a baseline survey. This survey captured information about basic demographics, work experience and income levels, poverty level (using the PPI), cognitive ability, thoughts on advertising, and previous experience with formal financial institutions and saving. All households were randomly assigned to one of three treatment groups or a comparison group.
Marketers from both banks distributed two types of fliers advertising the bank’s commitment savings product to households in the treatment groups. Informative fliers contained basic financial literacy information that highlighted the costs of borrowing versus saving, while persuasive fliers emphasized the quality and trustworthiness of a particular bank. Each treatment group received one flier from each bank in a random order: both informative, both persuasive, or mixed (one informative and one persuasive or vice-versa). All fliers were bright and colorful and had a map of the bank's location on the back and noted the four key features of the savings product: 2% interest rate , opening/minimum balance of 100 pesos, free lockbox for savings (paid for by IPA), and goal-setting feature (date or amount restrictions on withdrawal). IPA worked with the banks to refine product terms and conditions and ensure equivalency on a number of key features, terms, and fees so that no significant variation existed between the two banks’ products.
A few weeks later, marketers from both banks returned to all households reached in the baseline, including comparison households, and offered to help open savings accounts. To reduce the non-financial barriers to savings that respondents might face, marketers took ID photos for respondents and made copies of other documents required to open accounts. Marketers also worked with respondents to help set a savings goal. At the end of each day, marketers submitted completed application packets and initial deposits for processing by the bank. When accounts had been processed, marketers returned to households to hand over lockboxes and passbooks and answer any additional question the clients may have had about their new accounts. All households were visited by representatives from both banks in a random order to eliminate any first-mover effect.
Programs promoting financial literacy and savings among the poor have become popular in recent years, in hopes that they may enable individuals and families to meet their financial demands. Developing a financially educated population may help promote large-scale change in a country’s economic situation by increasing the savings rate and thereby smoothing individual consumption and increasing investment in productive resources. At this point, however, very little information exists as to whether or not financial education significantly improves savings behavior. Particularly, the impact which financial literacy programs can have relative to other means of promoting savings, such as designing group savings accounts that leverage peer pressure, is not known. Quantifying this impact can help researchers understand what drives financial decisions, and enable policymakers to fund programs that will have the largest impact on savings behavior.
Context of the Evaluation:
The population of Uganda is disproportionately young: 52 percent of Uganda’s population is under 15 years of age and 29 percent of the country’s adult population is between 15 and 34 years of age[1]. In addition to being very young, the population of Uganda has extremely low savings rates, even relative to its sub-Saharan neighbors, which on average have the lowest savings rates in the developing world. Between 2001 and 2003, for example, Uganda’s average savings rate was 5.2 percent. Its neighbor Kenya, by comparison, had an average rate of 12.7 percent for the same period.[2] Uganda’s current savings rate remains alarmingly low, at 10 percent[3].
Founded in 1984, the Foundation for International Community Assistance (FINCA)International’s mission is to provide financial services to the world’s lowest-income entrepreneurs . FINCA Uganda was founded in 1992, and hasexperience and expertise in providing financial assets, as well as, youth-oriented savings products to the world’s lowest-income entrepreneurs.
Description of the Intervention:
The Church of Uganda maintains a large network of youth fellowship groups, based out of village churches around the country. These groups were targeted for this intervention because they offer a high level of trust among members, as well as, a high degree of consistency across the different groups, relative to other youth group structures in Uganda. Each group has an average of 25 members with a well balanced mix of genders and occupations.
This evaluation examines two interventions: a financial education curriculum (a knowledge-based intervention) and a specially-designed youth group savings account (an access-based intervention). The curriculum was developed in partnership with Straight Talk Foundation – a highly successful Ugandan organization specializing in communication to youth – based on the Your Future, Your Moneycurriculum from the Global Financial Education Program and materials from Binti Pamoja, an organization that promotes the rights of teenage girls.
The ten-session, fifteen-hour curriculum focused primarily on teaching concepts and skills for improving savings behavior, ranging from role-playing the differences between saving and borrowing to achieve a goal, to how to keep a budget, to strategies for successfully discussing sensitive topics around money.
The group savings account was designed without fees and with simple account-opening procedures to minimize the barriers that were found in focus group discussions to most discourage young Ugandans from opening accounts.
Two hundred forty church groups, representative of all of Uganda’s regions, were selected based on their level of activity and access to district capitals. The sample population was randomly assigned into four groups, including one group which received neither intervention and served as the comparison group:
Offered/encouraged to open youth group savings account
No account offered
Financial literacy training
Treatment Group A
Treatment Group C
No financial literacy training
Treatment Group B
Comparison Group (Group D)
In total 120 groups were offered the financial education program by FINCA-hired and IPA-managed financial educators and 120 groups were offered the group savings account.
Results and Policy Lessons:
Results forthcoming.
[1] Uganda Bureau of Statistics (UBOS) and Macro International Inc. 2007. Uganda Demographic and Health Survey 2006. Calverton, Maryland, USA: UBOS and Macro International Inc. Page 11.
[2] Bank of Uganda research department, Sept. 14, 2005. Found in “Savings Habits, Needs and Priorities in Rural Uganda.” Prepared by Richard Pelrine, Olive Kabatalya. Rural SPEED and Chemonics International. Produced by USAID, September, 2005.
[3] Dovi, Efam, “Africa: Boosting Domestic Savings on the Continent.”
Health remains a major barrier to economic development in poor rural areas. Access to effective health products, whether preventive or curative, has so far remained limited due in large part to poverty and the absence of financial markets that would enable poor households to invest in health on credit. Given such constraints, poor households should save in anticipation of future health shocks. However, substantial evidence suggests that they lack adequate savings products, and, as a result, households are quite vulnerable to health shocks. In order to afford medical expenditures, they resort to drawing down productive assets or business capital or to other costly risk-coping strategies.
Policy Issue:
The benefits of investing in health are thought to be very high. For example, it has been estimated that 63 percent of under-5 mortality could be averted if households invested in preventative health products. Despite this, investment levels remain quite low in many developing countries. While many people point to credit constraints as the primary impediment, barriers to savings also appear to be a significant obstacle to investing in health. There are several major pathways through which savings may be constrained. Inter-household barriers may be relevant if social norms that necessitate that an individual provide support to friends and relatives if she is asked and has the cash on hand. Intra-household barriers may arise if members of a household have different spending preferences. Intra-personal barriers may arise if an individual’s saving and spending preferences are not constant over time. It is necessary to better understand these pathways and their relative importance so that we may develop more efficient health saving devices.
Context of the Evaluation:
The researchers chose to work with a common social structure in the area: a ROSCA (Rotating Saving and Credit Association) - a group of individuals who make regular cyclical contribution to a fund, which is then given as a lump sump to a different member at each meeting. Recent studies reveal very high participation rates in these organizations; across Sub-Saharan Africa, average membership among adults ranges between 50 and 95 percent.i
Details of the Intervention:
To estimate the relative importance of the different types of barriers to savings, the researchers randomly varied access to a set of saving devices specifically designed to alleviate one or more of the barriers discussed above. One hundred and thirteen ROSCAs were randomly assigned to five groups: four of the groups were given specific savings devices to use in addition to their regular weekly savings, while the fifth group served as a comparison.
In the first two treatment groups, members of the ROSCAs were given a locked metal box (with an opening in which deposits could be made) in which they could save at home. In the first group – the “Safe Box” group – members were given the key to the lock and could therefore take money from the box whenever they wanted, even to spend on non-health products. In the second group – the “Lock Box” group – members were not given the key and had to call the program officer in order to open the box. Once opened, the money in the box could only be used to buy health products.
The other two treatments were at the ROSCA level. In the third treatment group, individuals were encouraged to use their existing ROSCA to create a “Health Pot” in which members would contribute an additional amount during regular meetings earmarked for health products only. In the fourth group, individuals were encouraged to save in an individual “Health Savings Account” (HSA) that would be held at the ROSCA and earmarked for emergency health costs only (i.e. respondents were only allowed to withdraw this money if they needed it for a health emergency).
In all five groups, participants were encouraged to save for health savings goals. Thus, any effect of a savings product above and beyond the control group should be attributable to the product itself.
Results and Policy Lessons:
Overall, the results indicate a significant demand for such savings products. Take-up of all four treatments was extremely high, suggesting that the primary effect of all treatments is simply the provision of a mechanism to protect money from others.
In terms of health impacts, the researchers looked at two outcomes: (1) how much people invested in preventative health in the year following the program; and (2) whether people had enough money to deal with health emergencies. Note that the Lock Box and Health Pot were geared towards outcome (1), the Health Savings Account was geared towards outcome (2), and the Safe Box was geared to both outcomes.
Investments in Preventative Health: A year after the intervention, individuals in the Safe Box andHealth Pot groups had significantly higher levels of investments in preventative health products than those in the comparison group. Relative to comparison group individuals, the Safe Boxincreased investment by 67 percent, while the Health Pot increased investment by 128 percent. As expected, the Health Savings Account had no effect on this measure. Surprisingly, however, the Lock Box had no effect either. This lack of an effect is because the value of tying up money towards health is outweighed by the cost of completely limiting liquidity (for instance, to deal with unexpected income shocks).
Coping with Health Shocks: Individuals in the Health Savings Account treatment were less vulnerable to unexpected emergencies. People in the Safe Box group also appeared somewhat less vulnerable, though the effects were not significant at conventional levels. As expected, there was no effect in risk coping in the two treatments groups that were not designed for emergency savings.
Prevalence of Savings Barriers: The results confirm the presence of all three types of savings barriers. First, inter-personal barriers are substantial - those who were previously giving assistance to others without receiving assistance in return benefited more than others. Second, intra-personal barriers also matter. Those whose savings preferences were not constant over time (as measured by survey questions) were not able to benefit from the Safe Box (because it was too easy for them to access the money). They also did not benefit from the Lock Box – this is because even though the savings in the box was illiquid, there wasn’t a strong incentive to actually put money into the box in the first place. However, they did benefit from the stronger commitment and social pressure to make deposits that was provided by the Health Pot. Third, there is some evidence of intra-household barriers. The effects of several of the interventions were larger (though not statistically significantly so) for married individuals.
i Anderson, Siwan and Jean-Marie Baland. 2002. “Economics of Roscas and Intrahousehold Resource Allocation.” The Quarterly Journal of Economics 117 (3): 963-995
A significant share of low- and middle- income American families are thought to have inadequate savings for retirement. Families with income below $40,000 typically have low rates of coverage under employer-provided pensions, and tax deductions and other incentives often do not provide much incentive to contribute to Individual Retirement Arrangements (IRAs) because these households pay relatively little in taxes. Only two in five elderly Americans have a retirement savings account of any kind. Insufficient savings can reduce elderly households’ ability to cope with financial shocks.
Context of the Evaluation:
An alternative to tax benefits, government incentives such as savings matching may offer a more promising way to bolster savings among low- and middle-income households. Matching, where a percentage of savings is matched by the government in the form of additional deposits, is independent of an individual’s tax rate, and thus may provide an incentive for saving even for people in lower tax brackets. The Saver’s Credit, a federal program offering a tax reduction of up to 50 percent of funds contributed to a 401(k) or an IRA, offers one example of a matching program. Other matching contributions are present in many employer-sponsored 401(k) plans. Matching programs theoretically offer significant encouragement and benefits to families who desperately need to save for retirement, but the actual effects of matching on take-up and contributions are not well understood, and the willingness of families to contribute to retirement has remained low even in the presence of these programs.
Details of the Intervention:
The field experiment was conducted in conjunction with H&R Block, one of the world’s largest tax services providers. H&R Block offers its clients the option to split their tax refund between their IRA accounts and money for immediate use. Clients who engaged with this program in 60 H&R Block locations in the St. Louis metropolitan area from March 5th to April 5th, 2005, constituted the sample for this intervention study.
Each client electronically prepared their tax return and was randomly assigned one of three match rates for their IRA contributions. When a client was deciding how much to contribute to their IRA, they were told a (randomly chosen) rate at which their contributions would be matched, potentially influencing their contribution amount. Roughly one third received a 20 percent match rate, another third received a 50 percent match rate and the rest received a match rate of 0 percent, functioning as a comparison group. Individuals could receive up to $1,000 in matched funds.
Results and Policy Lessons:
Higher matching rates significantly increased IRA participation and contributions. Take-up rates were 3 percent, 8 percent, and 14 percent, respectively, for the comparison group, the 20 percent match group and the 50 percent match group. Conditional on take up, average contribution levels excluding the match funds were $765, $1102, and $1108, respectively. The 50 percent match rate raised take-up and aggregate contributions the most and did not reduce average contributions among participants, even as their number rose. The effects of matching on take-up rates and amounts contributed were particularly large for married tax filers.
Controlling for other factors, clients with a large tax refund, positive investment income, or higher overall income were more likely to respond to the matching offer. Taxpayers were much more responsive to matching in this experiment than in the aforementioned Saver’s Credit program, perhaps due to differences in information, program structure, or in the framing of the programs. The combination of financial incentives, tax preparer assistance and the opportunity to use part of an income tax refund to save could generate increases in both the efficacy of federal tax incentives and the willingness of households to contribute to retirement savings accounts.
Surveys on financial knowledge and behavior have revealed that individuals in both developed and developing countries around the world lack adequate knowledge to make informed financial decisions. Empirical evidence demonstrating correlations between financial literacy and various measures of well-being has directed service providers, donors, and policymakers to include financial training and business education programs as part of broader anti-poverty strategies. Financial education, especially when provided in the early stages of life, has the potential to create long-lasting impacts. Intuitively, financial education provides useful tools to people of all ages, yet empirical evidence for this impact is thin and often mixed. This project tests two financial education curricula for primary school students. Specifically, it measures the impact of financial education on student behavior attitudes, and outcomes.
Context of the Evaluation:
Saving and finances are part of daily life for many youth, yet traditional school curricula often overlook the specific issues and challenges students encounter with money. This curricular gap represents a missed opportunity for students and teachers. Aflatoun, a Dutch non-governmental organization providing social and financial education to 540,000 children in 33 countries,operates a voluntary after school club in Ghana for primary and junior high schools. Aflatoun uses a uniquely designed “social and financial education curriculum” to improve children’s saving habits as well as financial attitudes and self-esteem. Aflatoun’s training on handling money, saving on a regular basis, and spending responsibly aims to teach children, at a young age, lessons and behaviors that they will carry with them throughout their lives.
Aflatoun operates in collaboration with local partners to implement its programs. Two project partners in Ghana - the Women and Development Project (WADEP) and the Netherlands Development Organization (SNV) - trained instructors and managed program implementation. SNV Ghana worked with three other implementing partners in two regions to train teachers and monitor the implementation of clubs: Berea Social Foundation (Western Region), Support for Community Mobilization Projects and Programs (Western Region), and Ask Mama Development Organization (Greater Accra Region).
Details of the Intervention:
The study included 5,000 primary school students aged 9 - 14 in 135 public schools in semi-urban and rural Ghana, including 30 schools in Greater Accra, 60 in Volta, and 45 in Western District. One-third of the schools in each region were randomly assigned to each of three different groups: the Aflatoun program, Honest Money Box (HMB) intervention, or a comparison group without treatment.
The Aflatoun curriculum includes lessons about planning, budgeting, saving, proper spending, as well as self-esteem building exercises. It uses songs, games, and worksheets, which put children at the center of the learning process. Aflatoun also adapts its messages and activities to the context of the countries in which it operates, focusing on cultural heritage and community in order to foster a collective sense of empowerment among participant children. The HMB intervention, in contrast, is solely focused on financial education and is designed to provide a comparison for Aflatoun’s unique social and attitudinal curriculum. IPA developed the HMB intervention as a group savings scheme with a financial literacy curriculum. Some of the topics covered in the curriculum include: What is Money?, Saving and Spending, Planning and Budgeting, and Entrepreneurship, as well as lessons in how to use the Money Box, a lockbox that stores group savings.
To implement the two programs, local partner organizations trained approximately 200 teachers (two teachers in each selected school). Teachers instructed two multi-grade clubs, with an average of 54 students per club, and delivered the assigned curriculum, in addition to providing a secure storage space for the money saved, generally in the teacher’s locked office. Clubs met, on average, once a week after school at a time decided by the members. Students saved money from their pocket change and recorded transactions on individual passbooks. IPA and partner organizations monitored the teachers to ensure that implementation met pre-determined standards.
The evaluation was conducted over the course of one school year. Between 20 and 40 children per school were chosen to be surveyed.. The baseline survey was conducted in September 2010 and the endline in August 2011. The surveys collected data on financial well-being of students and their families, cognitive function, and perspectives on savings and time and risk preference. The endline survey captured the same information as the baseline, in addition to a financial education endline assessmentand a psychosocial module to understand students’ outlooks and levels of self-control.
The importance of education is a common refrain in the international development discourse and has inspired campaigns such as the second Millennium Development Goal: to achieve universal primary education. Decreasing primary school dropout rates is one strategy that has been employed to improve education systems. Children drop out for a number of reasons, but financial concerns are often a determining factor. Even when governments finance a significant part of primary education, providing teachers, curriculum and buildings, there are still many costs associated with attending school. Providing scholastic materials such uniforms, pens, pencils and exercise books may pose a significant challenge for poor families. Furthermore, these families may lack access to formal savings services, which may enable them to set aside money for education and keep it secure. This evaluation assesses the impact of a school-based savings program that aims both to encourage savings for school expenses and to promote financial education.
Context of the Evaluation:
Uganda’s primary school enrolment rates have increased spectacularly as a result of its policy of Universal Primary Education, which has eliminated most, though not all costs of attending school. Enrolment has gone from 3.1 million children in 1996 to more than 8.29 million in 2009. Retaining pupils, however, seems to be a more trying concern, though 94% of Ugandan children enroll in primary school, as few as 32% complete the final class P7[1]. While the government covers costs of teachers and schools, more than 40% of Ugandans find additional school expenses, like uniforms and supplies, unaffordable.
Description of the Intervention:
IPA has partnered with the Private Education Development Network (PEDN) and FINCA, Uganda to implement a savings program in Ugandan government primary schools. The goals of the “Super Savers Program” are to 1: enable pupils and their families to save money for education 2: incentivize and financially enable pupils to remain in school and 3: engender a culture of savings amongst participating pupils.
During the 2009 scholastic year, IPA, PEDN and FINCA piloted the program in eight government primary schools. The positive response to the pilot motivated researchers to scale the program and conduct a randomize evaluation of its impact.
At the end of 2009, the baseline data was collected in 136 schools in Jinja, Iganga, Mayuge and Luuka Districts after which schools were randomly assigned to a treatment or comparison group. There were 39 schools in each of the two treatment groups and 58 schools in the comparison group. Throughout the 2010 and 2011 scholastic years (February to November), the program was implemented in the treatment schools.
On a weekly basis a Super Savers Program Officer visited each school to assist teachers and pupils with the savings exercise. Pupils’ savings were kept at the school in a safety lock box. At the end of each term, the Super Savers Team and partner organization FINCA, Uganda collected the savings from schools and deposited the money into each school’s bank account. The Super Savers Team also conducted a parent sensitization program for the treatment schools, in which meetings were held at each school to present, discuss and teach parents about the program.
At the beginning of each of the year’s three school terms, FINCA and the Super Savers team returned to all schools to distribute savings to individual pupils. In the first treatment group, pupils received their savings in cash and were able to determine how they would like to spend or save the funds. In the second treatment group, pupils received their savings in the form a voucher, or coupon for the exact amount a child had saved. The voucher had to be used to make some educationally related purchase, such as school lunch, exam fees, a uniform, sanitary supplies for girls or to continue saving. On the day of the savings payout, the Super Savers Team organized a small fair at each school to enable pupils to make these purchases in both cash and voucher treatment groups.
Comparing outcomes within these two treatment groups, in relation to the comparison group, will help to determine if the intervention is effective in reducing drop-out rates and increasing savings levels, scholastic payments and other education outcomes.
The Super Savers Team is now preparing for the 2012 scholastic year, which will be used to determine the sustainability of the program and schools’ abilities to implement on their own, with little support from the team. This will be used to determine the program’s ability to be scaled and its long-term potential.
Results and Policy Lessons:
Results forthcoming.
[1] According to administrative data: http://www.unicef.org/infobycountry/uganda_statistics.html#77
Elderly poverty in the U.S. decreased dramatically during the twentieth century; from 1960 to 1995, the official poverty rate of Americans aged 65 and above fell from 35 percent to 10 percent. Social Security is often credited as a partial contributor to the decline. Despite this, for most U.S. families, employers’ pensions and not Social Security are the main source of cash income during retirement, but many of these pension plans are now reliant on voluntary employee enrollment. Individual choice about how much and when to save provides flexibility and autonomy, but low levels of savings can lead to crises in elderly households, and strains on the economic system which must support them.
Context of the Evaluation:
Over the last 25 years, traditional pension plans with mandatory employee participation have been partly replaced by Tax Deferred Account (TDA) retirement plans such as 401(k)s, which require employees to choose whether to participate and how much to save. As a result, most U.S. workers now have to make a decision about how much to save for their retirement, instead of being passive participants in their employer’s pension plan. This makes it very important for individuals to understand how retirement savings decisions are made. Deciding how to save for retirement requires complicated calculations and knowledge about financial options. Thus, information about these calculations and rules, as well as about the financial decisions of others, should have a large impact on savings behavior. However, while 71 percent of Fortune 500 Companies systematically hold financial information sessions, the meetings are often poorly attended.
Details of the Intervention:
This evaluation studies the influence of information and social networks on university employees' decisions to enroll in a voluntary TDA retirement plan. In an effort to increase TDA enrollment, this university set up a benefits fair to disseminate information about different benefits plans offered by the university.
Researchers offered a $20 reward for attending the fair to a random group of employees within a subset of randomly selected university departments. There were two distinct groups studied in the experiment: employees who received the letter promising the monetary reward for attending the fair, and employees in the same department as someone who received the letter, but who themselves did not. These two groups were compared to employees in departments where no one received the $20 reward offer. The study traced the reward's effects on recipients' fair attendance and TDA enrollment, as well as the social network's effects on fair attendance and TDA enrollment of non-recipients in the same department as reward recipients.
Results and Policy Lessons:
Impact on TDA Enrollment: Small financial incentives successfully induced employees in treated departments (both reward recipients and non-recipients) to attend the benefits fair. Twenty-one percent of individuals in treated departments attended the fair, compared to only 5 percent in untreated departments. One year after the program, the program increased TDA participation by about 1.25 percentage points for the 4,000 non-enrolled employees in treated departments relative to untreated departments; hence the program induced 50 extra employees to start contributing to the TDA.
Direct vs. Indirect Effects: The direct effect is no larger than the indirect effect: in treated departments, those who received the letter and those who did not are about as likely to subsequently enroll in the TDA. This suggests that an individual’s decision to participate in the TDA is affected by small changes in their environment (i.e. in their social network), and not only by the information content of the fair.
Cost-Effectiveness: Assuming that those employees who enrolled in the TDA as a result of this program contributed about US$3,500 per year (the average contribution of newly enrolled employees), the extra TDA savings generated by this program is about $175,000 per year. The extra savings obtained is therefore very large relative to the inducement cost (about $12,000). However, these effects remain very small compared to the changes in enrollment which can be effected by altering default enrollment rules.
1 National Bureau of Economic Research (NBER), “Social Security and Elderly Poverty,” http://www.nber.org/aginghealth/summer04/w10466.html.
This research examines whether bank marketing and communication tools can help individuals save more and, in particular, switch from informal savings vehicles to formal sector methods (e.g., a bank account). In conjunction with Caja Municipal de Ica (CMI), IPA examines various methods of product design, beyond the financial incentive, of encouraging clients to complete their savings commitment.
Policy Issue:
Microfinance has generated worldwide enthusiasm as a possible strategy to help people living in poverty get the resources they need to start a business, receive additional education, or make investments. While much of the focus of microfinance has been on microcredit, formal savings services can also have a dramatic impact on the lives of the poor. Savings are important both as insurance in the case of illness or other economic shocks, and as a way to purchase productive assets. Savings can also substitute the need for loans among clients who have enough funds to finance their expenditures themselves. But savings strategies are less tested than credit services, and microfinance institutions struggle to effectively expand their savings services.
Context of the Evaluation:
The semi-urban poor living in Ica and Ayacucho, cities in southern Peru, often earn income through small enterprises and self-employment. In Ica, agriculture represents the most important industry, while Ayacucho is well known for its artisans and handicrafts. Many of the poor in this part of Peru save through informal means. They often keep savings in their own homes, a practice referred to as a colchón banco (mattress-bank), or join Merry-go-Round savings groups called ROSCAs, where members pool their money into a pot, and each week or month a different member takes home the pot. Due to their informal nature, both of these savings practices can be risky and unreliable.
Details of the Intervention:
Researchers will examine whether an initiative to promote savings can help individuals save more and switch from informal savings to formal sector methods. The study is implemented by the Caja Ica, a bank designed to serve the needs of poor clients with microsavings and microcredit programs, with program support from Catholic Relief Services (CRS) and technical assistance from COPEME. The Caja Ica is offering a new commitment savings product called “Ahorro Programmado”. Clients who choose to participate in this service commit to saving an amount of their choosing, amounting to at least 20 soles (US$6.50) per month for 6, 12, 18, or 24 months. As an incentive for meeting their savings commitment, clients receive a preferential interest rate of more than twice what the normal interest rate is for savings accounts.
This research will examine various product designs, beyond the already increased financial incentive, to see which are more effective at encouraging clients to complete their savings commitment. Each of the estimated 5,000 clients expected to enroll in the program will be randomly assigned to receive one or more of the following: (1) reminder letters before the due date of their payment, (2) token gifts upon payment to bring forward the "benefit" of saving, (3) positive or negative incentive messages on each deposit slip, or (4) no services, serving as a comparison. This study will determine the commitment device that most effectively encourages clients to meet their savings goals.
Results and Policy Lessons:
Clients began opening bank accounts in February 2006. The last group to be tracked completed their savings commitments in Oct 2007. Preliminary results indicate that sign-up gifts, letters, and deposit slips all increased the probability that clients would reach their savings goal by several percentage points. However, negatively framed messages appear to be more effective than the corresponding positive messages in getting people to save.
Savings are crucial for managing irregular and unpredictable cash flows in order to meet daily needs, finance lumpy expenditures, and deal with emergencies. For poor households, informal tools like credit from moneylenders are often less efficient than savings mechanisms as they require high interest rates to finance predictable and recurring expenses. Evidence suggests that these households often have excess financial capital after covering subsistence expenses that could be used for savings. Access to and utilization of financial products that help the poor save funds for the future may have substantial welfare consequences.
The recognition of this need has led to the creation of greater financial access throughout the developing world. Banks, for instance, have increased their reach over the past decade in Sub-Saharan Africa, offering savings accounts with minimal fees and opening requirements. Take-up of formal savings accounts among the poor, however, remains low. Why do poor individuals fail to take advantage of the lower-risk, lower-cost vehicle for saving that bank accounts offer? This study evaluates the relative importance of individual beliefs, psychological factors, and transactional barriers to opening accounts.
Context of the Evaluation:
Tamale, located in the Northern Region of Ghana, is the third largest city in the country. It has a quickly growing economy and has recently experienced a financial services boom: approximately three banks had opened new branches within the three-year period preceding this study. These banks have also made efforts to design accounts with minimal requirements and fees to be accessible to the poor. The take-up of these products among poorer demographics, however, has been low. During the study, Zenith Bank, which opened its branch in Tamale in 2009, offered savings accounts with no requirement for an opening balance and no fees. Innovations for Poverty Action conducted this study in collaboration with Zenith Bank to provide access to formal saving accounts to individuals who face specific expenditure opportunities that might otherwise be financed with credit. This study aims to determine which of several treatments is most effective in encouraging individuals to open a formal savings account.
Details of the Intervention:
The sample in this study includes 1831 market vendors who had businesses in the Central Market of Tamale. These vendors were mostly female and illiterate and owned businesses that sold a wide variety of products including rice, tailored clothing, household items, and produce. This demographic was ideal for the study because: (1) Market vendors earned a steady source of revenue from their businesses and thus had funds they could potentially save; (2) These vendors often relied on informal credit to finance major expenditures, such as school fees, business inventory, and rent; and (3) The market was close to several local banks, including Zenith Bank, the partner for this study.
A baseline survey was administered to the market vendors to collect data on businesses, common expenditures, savings and loan behavior, and financial attitudes. Afterward, representatives of Zenith Bank came to the market to offer savings accounts to those who had received the baseline survey. All savings accounts included weekly reminders to save via text message. Participants received three types of treatments randomly assigned before the account-offering:
Framing Condition: Individuals were randomly assigned into one of three groups. Those in the Comparison Group received no treatment. Those in the Information Group were provided with specific information from previous studies about how much more individuals save when they receive reminders to save. Those in the Emotion Group were asked to tell a story that generates positive and hopeful emotional feelings.
Cost Condition:Individuals were randomly assigned to one of two groups. Those in the Zero Cost Group were encouraged to open an account and could do so without ever visiting the bank. Those in the Transaction Costs Group were encouraged to open an account but had to visit the bank to do so.
Savings Tools:Individuals were randomly assigned to one of three groups. Those in the Comparison Group received no tools with their account. Those in the Financial Plan Group received a customized simple savings plan to finance a specific expenditure.
The primary study outcomes were a) willingness to open a formal bank account with Zenith band and b) savings deposit behavior after opening accounts.
Results:
The strongest treatment effect came from removing all transaction costs for opening a bank account. Individuals were more than ten times more likely to open an account when they could open accounts directly at their place of business. Convenience seems to be a primary motivating factor in decision-making about interacting with formal banking.
Specific information did not increase the likelihood of opening an account or making savings deposits. If anything, specific information about the benefits of saving with regular reminders decreased the willingness to open an account unless that information was highly positive. Emotional framing also had no statistically significant effect on account opening.
While many individuals opened accounts, relatively few individuals continued making deposits over a long-run horizon. Six months after the study the majority of account holders were not making regular deposits (no individuals in the high transaction cost group continued to make deposits while 2.5% of individuals who could open accounts in the field continued to make deposits). For this reason, we see no impact of specific savings tools on the level of savings.
This project will evaluate the effectiveness of financial education and commitment contracts in promoting higher levels of saving, reduced reliance on credit card debt and healthier financial portfolios among low-income individuals in the United States. U.S. households in the bottom quartile of wealth spend, on average, more than they earn, and many low-income consumers lack formal savings accounts. Consumers tend to have time-inconsistent preferences for savings and consumption; they tend to be more impatient in the near-term than in the long-term and thus have a propensity to make purchases that are later regretted. This project will evaluate the impact of commitment devices as a mechanism for mitigating time-inconsistent tendencies in spending, borrowing and saving.
Microfinance institutions have increased access to financial services over the last few decades, but provision in rural areas remains a major challenge. Traditional community methods of saving, such as ROSCAs can provide an opportunity to save, but do not allow savers to earn interest on their deposits as a formal account would, or provide a means for borrowing. Savings Groups attempt to address these shortcomings by forming groups of people who can pool their savings in order to have a source of lending funds.
Policy Issue:
Although during the last decades microfinance institutions have provided millions of people access to financial services, provision of access in rural areas remains a major challenge. It is costly for microfinance organizations to reach the rural poor, and as a consequence the great majority of them lack any access to formal financial services. Traditional community methods of saving, such as the rotating savings and credit associations called ROSCAs, can provide an opportunity to save, but they do not allow savers to earn interest on their deposits as a formal account would. In addition, ROSCAs do not provide a means for borrowing at will because though each member makes a regular deposit to the common fund, only one lottery-selected member is able to keep the proceeds from each meeting.
Village Savings and Loan Associations (VSLAs) attempt to overcome the difficulties of offering credit to the rural poor by building on a ROSCA model to create groups of people who can pool their savings in order to have a source of lending funds. Members make savings contributions to the pool, and can also borrow from it. As a self-sustainable and self-replicating mechanism, VSLAs have the potential to bring access to more remote areas, but the impact of these groups on access to credit, savings and assets, income, food security, consumption education, and empowerment is not yet known. Moreover, it is not known whether VSLAs will be dominated by wealthier community members, simply shifting the ways in which people borrow rather than providing financial access to new populations.
Context of the Evaluation:
The Village Savings and Loans program in this study is implemented in rural communities across seven districts in Eastern, Western, and South-Western Uganda. Community members are predominantly engaged in farming or animal breeding depending on the region. With little access to formal financial institutions, these small farmers do not have the opportunity to invest in agricultural inputs like fertilizer that could increase their income.
Description of the Intervention:
Three hundred ninety-two villages were selected to participate in this study and randomly assigned to a treatment or comparison group. Half of the villages in the treatment group were introduced to the VSLA model by community-based trainers who received an orientation by CARE and its local implementing partners.
Community-based trainers present the model to villagers at public meetings. Those interested in participating are invited to form groups averaging about twenty and receive training. These groups, comprised mostly of women, meet on a regular basis, as decided by members, to make savings contributions to a common pool. At each meeting, members can request a loan from the group to be repaid with interest. This lending feature makes the VSLA a type of Accumulating Savings and Credit Association (ASCA) providing a group-based source of both credit and savings accumulation. CARE’s VSLA model also introduces an emergency fund, allowing members to borrow money for urgent expenses without having to sell productive assets or cut essential expenses such as meals.
This study will assess the impact of VSLA trainings and group membership on access to credit, savings and assets, income, food security, consumption education, and empowerment.
Results and Policy Lessons:
Results forthcoming.
We are also working with CARE to evaluate their VSLA programs in Ghana and Malawi. See here for more details.
A large fraction of the labor force in many developing countries is self-employed, but few of these self-employed individuals ever make the jump to hiring paid employees. A cross-cutting intervention will evaluate the impact of three policies aimed at helping small firm owners to make that jump.
The first is business training. The second is a wage subsidy for the first six months of hiring a new worker. The third is a matched savings program to encourage small business owners to accumulate sufficient capital to make the necessary investments needed to make an additional worker profitable.
We randomly provide these three programs to microenterprises, also interacting the treatments so that we can see, for example, whether business training has more impact if also coupled with savings, or whether wage subsidies work better for the self-employed who have receiving training on how to grow their businesses.
Motivated by the recent escalation in food prices around the world, several countries, including Kenya, Malawi, Rwanda, and Zambia, have implemented large-scale fertilizer subsidy programs to boost food security and small farm productivity. If people are unaware of the benefits of using fertilizer, or do not know how to use it, then subsidies may be a useful tool to give people experience with using fertilizer, and promote adoption. However, a long-standing question is whether one-time or temporary provision of subsidized fertilizer can get households to adopt it long-term, or whether input use and farm production eventually return to previous levels after subsidies are phased out. The key to determining whether provision of subsidies can lead to long-term growth, even after the subsidies are no longer in effect, is to discover if farmer practices change fundamentally, or whether these practices change only (if at all) when subsidies are being offered.
Context:
Large-scale emigration, economic dependence on South Africa, and a prolonged civil war hindered Mozambique’s development until the mid 1990s. Agriculture accounts for almost 29 percent of the country’s GDP, however agricultural technology adoption has been slow in Mozambique compared to other counties in the region. Most of the farmers interviewed for this study had little or no experience with application of chemical fertilizers and other agro-chemical inputs.
Description of Intervention:
Researchers are investigating the impacts of fertilizer subsidies on smallholder farmers in rural Mozambique, and in particular, whether providing farmers opportunities for savings accounts can help subsidies achieve a greater sustainable impact. Vouchers for fertilizer were distributed randomly to a sample of farmers. In partnership with Banco Oportunidade de Moçambique (BOM), researchers also randomized offers of one of several different savings accounts interventions, to see how the subsidies and savings accounts complemented one-another.
The sample comprises farmers with access to some type of agricultural extension service, either through an NGO or government entity, so that they have access information on how to use fertilizer if they choose to use it. Researchers worked with two sub-groups of farmers. The voucher randomization (VR) sample is comprised of farmers randomly distributed (or not distributed) vouchers for fertilizer. The VR sample enabled researchers to examine the interaction between voucher receipt and savings incentives.
Treatment Groups:
No savings offered
Offered regular interest rates
Offered individual savings with 50% match
Offered group savings with match
Received voucher for fertilizer
Treatment Y-0
Treatment Y-1
Treatment Y-2
Treatment Y-3
Did not receive voucher for fertilizer
Treatment N-0
Treatment N-1
Treatment N-2
Treatment N-3
As shown in the table, the VR sample consists of three treatment groups which received different combinations of interventions, and a comparison group which did not receive an intervention. In treatment group 1, farmers were offered a savings account with standard BOM interest rate. Treatment group 2 offered “matched savings” accounts, where farmer received matched funds equal to 50 percent of his or her average savings balance (up to 3,000 MZN, or US$112) during a defined match period. (The match rate is the percentage of the average balance in the account that is contributed by the project at the end of the match period, not an annual percentage rate.) In treatment group 3, farmers were offered a savings match with a group incentive, where the match rate rises or falls in accordance to the average account balance of the entire group. Farmers are not required to use the match for fertilizer, yet the match amount does allow each farmer to afford the inputs provided in the fertilizer package, which many farmers could not afford otherwise.
During meetings with farmer groups, project staff discussed the importance of savings and keeping part of one’s harvest proceeds for fertilizer and other agricultural inputs for the next season. Farmers were also given specific instructions about using the fertilizer package for maize, and information on BOM savings services and locations. After farmers completed the baseline survey, savings accounts were offered, and project staff assisted interested farmers in filling out the forms to open an account. Farmers then could make their initial deposit at a BOM branch or a Bancomovil, a mobile bank that services many of the sites.
During follow-up surveys planned for 2012 and 2013, researchers will collect data on per-capita income and expenditures, maize yields and use of seed varieties and fertilizers, and the creation and use of savings accounts.
How important are differences of opinion within the household for making financial decisions? In this study married couples in rural Kenya were given the opportunity to open joint and individual bank accounts at randomly assigned interest rates. Can couples with very different preferences work together to save in the highest return account, or do these differences lead to poor financial choices?
Policy Issue:
Despite their low incomes, individuals in developing countries save using a wide variety of informal savings devices like illiquid rotating savings and credit associations. Researchers have widely noted the popularity of these informal devices and an attendant puzzle: these devices are often risky, complex, and costly when compared to simple alternatives, such as storing savings at home. What then, makes these costly savings practices attractive? Anecdotally, many informal savers cite the need to protect savings from misappropriation by other members of the household, particularly spouses. How important is this need in determining individual savings choices? Does it become more important as individual preferences for how much to save diverge? And how much are individuals willing to sacrifice to gain additional control over household savings levels?
Context:
While formal financial services in Kenya have traditionally been outside the reach of the poor, banks have recently begun to offer lower cost formal savings products marketed to a broader swathe of the population. This project was implemented in collaboration with Family Bank, a formal bank in Kenya that offers products suitable for lower income savers. Family Bank offers savers the option of both individual accounts, which can only be accessed by the account owner, and joint accounts. When spouses jointly own an account, either member can make deposits and withdrawals at will.
Description of Intervention:
All married couples participating in the intervention were given the opportunity to open up to three accounts with Family Bank: an individual account for the husband, an individual account for the wife, and a joint account. Each account was randomly assigned a temporary 6-month interest rate, which ranged from zero percent (the norm for Family Bank accounts) to 10 percent. The interest rate intervention consequently created random variation in not just the absolute rate of return available to a couple, but also the relative rates of return between the three different accounts. This offered a simple way to measure efficient savings behavior: an efficient couple should always choose to save in the account with the highest rate of return.
In addition to the interest rate intervention, half of couples who opened at least one individual account were randomly selected for an information sharing treatment. The goal of this treatment was to test whether individual accounts were used to hide information from spouses. This treatment enabled the spouse of an individual account holder to retrieve information on the balance of the individual account at the bank (provided both the spouse and the account holder consented to the information sharing treatment).
Finally, all couples in the intervention were asked a series of questions at baseline to measure levels of patience and preferences over savings levels. These questions were used to construct a measure of preference heterogeneity in the household. Individuals were also asked about their own and their spouse’s use of a variety of savings devices – this information was used to construct a measure of how well informed spouses were about one another’s finances.
Results:
Responses to Experimental Interest Rates
All couples responded robustly to the experimental interest rates. However, those couples with badly aligned savings preferences (the “poorly matched”) were more than twice as likely to save in individual accounts and 34 percent less likely to save in joint accounts. Furthermore, poorly matched couples were insensitive to relative rates of return between the three different accounts on offer. In contrast, those couples who were well matched on savings preferences responded robustly to relative rates of return. Consequently, poorly matched couples sacrificed at least 58 percent more potential interest rate earnings when compared to their well matched peers.
Responses to the Information Sharing Intervention
Over 40 percent of couples selected for the information sharing intervention did not consent to it, which suggests that individual accounts are used to hide resources from spouses. Furthermore, those couples who were poorly informed about each other’s finances at baseline were significantly less likely to consent. These poorly informed couples were also significantly more likely to save in individual accounts and marginally less likely to save in joint accounts. However, measures of intrahousehold information sharing and preference heterogeneity were uncorrelated with one another.
Overall, these results suggest that when savings preferences in the household diverge, individuals strategically exploit secure savings devices to control the overall level of household savings. However, even when preferences over how much to save are well aligned, individuals may still value secure accounts if these accounts allow them to hide savings from others.
Testing the impact of formal savings accounts on savings, productive investment and expenditures among small-scale entrepreneurs in rural Western Kenya.
Policy Issue:
Hundreds of millions of people in developing countries earn their living through small-scale businesses with very low levels of working capital. Approximately a quarter of households living on less than US$2 per day have at least one self employed household member. Enabling small-scale entrepreneurship has long been identified as a mechanism to alleviate poverty, and substantial attention has been paid to microcredit as a means to promote entrepreneurship. However, the impact of microcredit schemes on business outcomes, especially for the very poor, is still largely unknown, and many banks which target the poor realize low or negative profits. In this context, some have argued that the focus needs to be put on savings instead of credit, since evidence suggests that individuals should be able to save their way out of credit constraints. But this strategy demands accessible opportunities for people to save securely – an uncertain prospect for the vast majority of the poor who still lack access to formal banking services of any kind.
Context of the Evaluation:
In Kenya, small enterprises have been estimated to account for more than 20 percent of adult employment and 12-14 percent of national GDP, but only 2.2 percent of surveyed microentrepreneurs had a savings account with a commercial bank prior to the study. Some individuals have demonstrated a willingness to pay a premium to save securely, often receiving negative interest or tying their funds up in illiquid savings and credit associations. The fact that people take up these costly strategies suggests that the private returns to holding cash at home are even lower, possibly due to the risk of theft, appropriation by one’s spouse or other relatives, or because individuals tend to over-consume cash on hand. In the village of Bumala, a market center along the main highway connecting Kenya to Uganda, a community-owned bank sought to increase access to formal banking by offering savings accounts to villagers. Still, two years after opening, only 0.5 percent of daily income earners had opened an account, citing lack of information about the bank and the inability to pay the account opening fee as primary reasons for low take-up.
Description of Intervention:
Working in collaboration with the Bumala village bank, researchers studied the importance of savings constraints for self-employed individuals in rural Kenya. Field workers identified market vendors, bicycle taxi drivers, and self-employed artisans who did not already have a savings account, but were interested in opening one. Of the eligible individuals, 163 were randomly selected to be offered the option to open a savings account at no cost, with a minimum balance that could not be withdrawn. These accounts offered no interest and included substantial withdrawal fees. Thus, the de facto interest rate on deposits was negative. A comparison group of 156 individuals was not barred from opening an account but was offered no assistance in doing so.
To test the prevalence and impact of savings constraints, researchers examined 279 self-reported daily logbooks kept by individuals in both the treatment and comparison groups. These logbooks included detailed information on market investments, expenditures and health shocks, making it possible to examine the impact of the savings accounts along a variety of dimensions. Field workers met with respondents twice per week to verify the logbooks were being filled out correctly, and paid respondents a small amount for each week the logbook was completed correctly. This information was supplemented with administrative data on savings from the bank itself.
Results and Policy Lessons:
Impact on Savings Account Take-up: Eight percent of respondents refused to even open an account, while another 39 percent opened an account but never made a deposit. Of those who did utilize the savings accounts, women made significantly larger deposits, a median of 100 Ksh,(US$1.42, equivalent to 1.6 times average daily expenditure) compared to the median deposits for men of 50 Ksh ($0.71). This gender difference increased for those who deposited more. Account usage was very strongly correlated with wealth, suggesting that the accounts were mostly useful for people above subsistence levels.
Impact on Savings Behavior: Reported average bank savings were higher in the treatment group. For male market vendors, bank savings crowded out savings in animal stock and rotating savings and credit associations (ROSCAs—informal groups that require members to make regular contributions to a savings pot that is periodically given to one member). However, females in the treatment group did not decrease other forms of savings in animal stock and ROSCAs. There are various possible explanations for the continued use of ROSCAs by women. It is possible that ROSCAs are valuable as a source of credit and emergency insurance; that they provide a form of savings commitment through social pressure; or that changes in ROSCA participation could not be captured during the study due to the long savings cycles (up to 18 months).
Impact on Business Investment: Four to six months after they were offered, bank accounts had substantial positive impacts on business investment for women, with a 45 percent increase in average daily investment. This suggests women faced large negative returns on money they saved informally, and those constraints were important for the businesses they run. While very large on average, this treatment effect is also quite heterogeneous: only 57 percent of women in the treatment group made at least one deposit within the first 6 months of opening the account, and only 43 percent made at least two deposits within that timeframe.
Impact on Private Expenditures: Findings suggest that higher business investment in the treatment group led to higher profits, as measured through household expenditures. The accounts had a significant positive impact on expenditures on the entire sample, with this effect most strongly concentrated for market women. About 6 months after having gained access to the account, the daily private expenditures of women in the treatment group were on average 27 to 40 percent higher than those in the comparison group. Daily expenditure on food was also significantly higher.
Impact on Health Shocks: Evidence suggests that the accounts had some effect in making women less vulnerable to health shocks. The logbooks showed that women in the comparison group were forced to draw down their working capital in response to illness. Treatment women were less likely to reduce their business investment levels when dealing with a health shock, and were better able to smooth their labor supply during illness. In particular, women in the treatment group were more likely to be able to afford medical expenses for more serious illness episodes.
Expanding financial services to reach the poorest of the poor helps to broaden their savings and investment options. Yet the vast majority of people in the developing world remain unbanked [1]. In the absence of formal savings products, many in the developing world depend on costly devices like "susus", agents who charge a fee to collect money for secure keeping, or illiquid devices such as rotating savings and credit associations (ROSCAs), groups that pool members’ regular contributions for lump-sum distribution. A majority of rural households store cash at home, “under the mattress” [2], where it is prone to loss, theft, and the demands of neighbors and kin.
Early experimental evidence from Kenya suggests that small business owners can benefit from access to a savings account in a formal bank [3]. By understanding the channels through which savings accounts might impact the lives of poor households, financial institutions—and the products they offer—can be better poised to serve this vulnerable population.
Context of the Evaluation:
This study is ongoing in three countries: Malawi, Uganda, Chile. We are currently exploring options to add a study site in the Philippines. The aim is to understand the causes and consequences of the lack of access to banking services in a variety of contexts.
Malawi: Malawi’s population is largely rural, with agriculture supporting over 85 percent of the population [4]. A 2009 study found that 55 percent of Malawians do not have access to any type of financial institution, formal or informal; furthermore, only 19 percent of the overall population uses a formal bank [2]. In Malawi, the study is being conducted in the Southern Region, which has lower than average levels of bank usage and financial inclusion [2].
Uganda:A 2006 study found that 62 percent of Ugandans do not have access to any type of financial institution and only 16 percent of the population uses a commercial bank [2]. Total savings remains low: from 1999-2009, Uganda's gross domestic savings averaged 9.3 percent, compared to 21 percent worldwide and 12 percent for the least developed countries [3]. In Uganda, the study is being conducted across several districts in the southwest of the country.
Chile:Although Chile boasts an upper-middle-income economy, such prosperity is not universally shared. In 2009, Region IX – the target region for the study – reported the highest incidence of poverty in the country at 27.1%, nearly double the national average [3]. And although Chile has a vibrant financial sector, an IPA-led pilot exercise in the target region revealed that 33% of the population does not use a savings account.
Philippines:The Philippines has reached a medium level of deposit account usage, with around 50 accounts per 100 people in 2009. (Globally, there are more savings accounts than people.) [1] While this is to be celebrated, financial inclusion for rural populations has lagged, and 37% of municipalities did not have access to banking services in that year [7]. Recently, however, the mobile money sector has developed, enabling anyone with a mobile phone to conduct basic transactions. Mobile banking services have great potential to provide access to the rural poor in this context.
To evaluate the impact of access to a formal savings product, the researchers have partnered with a commercial bank or credit union at each site.
Description of Intervention:
In each site, IPA identified a partnering financial institution and selected rural areas in which the partnering institution is operating. A probabilistic sampling strategy was then used to enroll into the study a representative sample of unbanked households in those areas. Upon enrollment and completion of a baseline survey, study households were randomly assigned to either a treatment or comparison group. Those assigned to the treatment group received a voucher enabling them to open an account, at no cost to themselves, with the local branch of the partner institution. They also received procedural assistance with account opening. Take-up of the account offer varied from 20% in Chile to 78% in Malawi.
Follow-up surveys at 6-, 12- and 18-month will be used to estimate the impacts on a range of household activities, including agricultural and business practices, expenditures, household income, response to shocks, and savings and credit practices.Qualitative data will be collected to understand the mechanisms through which access to a bank account affected (or not) the study participants.
Results and Policy Lessons:
Results forthcoming.
1. CGAP. 2009. Financial Access 2009: Measuring Access to Financial Services around the World. World Bank Group.
3. Dupas, Pascaline and Jon Robinson. 2009. Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya. NBER: Working Paper 14693.
6. World Bank. 2010. World Development Indicators 2010 [Online Database]. Washington, DC: The World Bank.
7. Jimenez, Eduardo C. 2010. Financial Access: An Essential Condition. Presentation at the OECD-Banque du Liban Conference on Financial Education. http://www.oecd.org/dataoecd/57/21/46256657.pdf
