Studies Supported by the Financial Services for the Poor Initiative:
Traditional savings accounts often have low or negative returns, which may explain why many poor households do not use them to boost their savings. Researchers are investigating the impact of a new product that allows Kenyans to invest small amounts of money in a low-risk, high-return infrastructure bond using their mobile phones.
Lack of access to finance constrains small business growth—a problem that is exacerbated for Muslim business owners, many of whom do not take out traditional loans for religious reasons. Innovations for Poverty Action is supporting research on a joint-ownership lease-based asset finance contract, which allows businesses to share risk with a large microfinance institution, includes more flexible repayment schedules, and complies with local Islamic financial norms. Researchers will evaluate whether this product boosts sales and profits for small businesses in Pakistan.
Small business growth is crucial for helping the poor improve their livelihoods, but expensive and inflexible financial products restrict business owners’ access to credit and constrain profits. Innovations for Poverty Action is supporting research that examines whether new financial products can help Indian female market vendors pursue borrowing strategies tailored to their business needs, while building up a reserve of savings they can use to finance week-to-week inventory purchases. The products feature increased flexibility in borrowing and repayment schedules, as well as an offsetting locked savings account that allows clients to build up savings while reducing interest rates on their loans.
The vast majority of the world’s poor save, yet they often do so informally even when research findings suggest that accessing savings accounts at formal institutions can help low-income households increase their savings, investments, and ultimately their income. Could temporary interest rate incentives increase formal account use among the poor? A randomized evaluation in rural Kenya found that offering higher short-term interest rates on a savings account substantially increased bank account use two and a half years for after the promotional rate ended. Offering the interest rate promotion on individual bank accounts also increased household income via growth in entrepreneurship, while offering the promotion on joint bank accounts increased investment in household goods and led to greater spousal agreement on financial matters.r
For agricultural workers without access to bank accounts, saving during the main farming season to be able to afford durable goods or buy necessities in the off-season is difficult, but important. Without the option to save their wages, workers may even choose to work less, feeling that working will not help them reach important goals. Researchers, in collaboration with a tea firm in Malawi, are introducing mobile savings accounts with an option for workers to defer receiving a part of their wages until the end of the tea harvesting season to evaluate whether these programs help workers save and work more.
Evidence suggests that facilitating access to formal savings services can increase savings, investment, and income among the poor in developing countries. However, use of these accounts is relatively low, and it is less clear how to increase interest in, and usage of, formal savings services among the poor. In the Dominican Republic, researchers partnered with a Dominican bank to evaluate the impact of commitment savings accounts among beneficiaries of ProSoli, a conditional cash transfer program.
Introducing biometric identification substantially increased repayment rates amongst Malawian farmers with the highest risk of default. Researchers are now examining the large-scale impact of biometric technology on repayment and borrower behavior at microfinance institutions across the country.
Can automatic monthly transfers from a checking account into a dedicated savings account help bank clients meet their savings goals? Can monthly SMS reminders to save or short ‘rules of thumb’ based financial training do the same at a lower cost? Researchers are partnering with Banco del Estado, a state-owned but independently run bank in Chile, to evaluate the impact of default deposits, SMS reminders to save, and short financial training for bank clients in low-income urban areas.
Researchers are partnering with a mobile money operator in Kenya to offer a commitment savings product to parents whose children will soon be making the costly transition to high school. The product is designed to encourage individuals to save for future expenses by offering a higher interest rate on savings that are not withdrawn until a certain date.
Can employers help unbanked individuals enter the formal financial sector by offering their employees electronic wage payments? Researchers are working with a bank, a mobile money operator, and garment manufacturers to help answer this question. This study will randomly assign employees at select factories to either continue collecting their wages in cash, receive them as a mobile money payment, or as a direct deposit payment into a no-frills bank account.
This study will examine the business impacts of an “in-kind” loan product, where the lender buys a productive asset on behalf of a micro-entrepreneur instead of disbursing cash. Researchers are conducting a randomized evaluation of in-kind loans to determine whether the potential benefits of restricting the use of capital to overcome social pressures and behavioral biases outweigh potential shortcomings for clients as a result of the limited flexibility, fungibility, and divisibility of the loan.
Many beneficiaries of social welfare programs around the world receive their benefits in cash or by check. Can distributing welfare benefits through electronic transfers directly into bank accounts help some of these low-income individuals enter the formal financial sector? Researchers are partnering with the Chilean Government to evaluate the impact of a social welfare program’s transition from cash distribution to electronic transfers.
With limited income and many demands on their financial resources, it is especially important for poor households in developing countries to allocate their money deliberately across various expenditures. In Malawi, researchers investigated how paying workers in weekly installments versus as a monthly lump sum affected their spending on temptation goods, and if the timing of wage payments changed the impact of the payment structures.
Many people in developing countries rely on risky and expensive methods of managing their assets. In this study, researchers are evaluating whether lowering the cost of accessing savings accounts through local point-of-sale enabled agents and providing financial literacy training impacts the saving and consumption patterns of cash transfer beneficiaries in rural Peru.
The majority of people living in Sub-Saharan Africa do not have access to electricity. Traditional power companies often find it too costly to bring electricity to rural and suburban areas, but in recent years, the cost of alternative energy sources like solar power has fallen dramatically.
Researchers are evaluating whether incentives to save are effective at increasing savings levels and whether these higher savings levels persist after the incentives are removed.
Transaction costs, such as those associated with opening, maintaining, and withdrawing funds may be a barrier to using formal savings accounts for those with low income. Couples in Western Kenya were offered the opportunity to open bank accounts, in the husband’s name, wife’s name or both names jointly. In addition, a subsample accounts were randomly selected to come with a free ATM card, which lowered withdrawal fees and made the accounts more accessible through ATM machines.
Traditional commitment savings accounts encourage savings behavior by restricting withdrawals until a pre-set savings goal is reached. This study tests a natural extension of this design by offering households a new savings account that helps clients commit to a savings goal by mimicking the regular payment schedule and noncompliance penalties of a loan. Results show that the regular saver product is effective at increasing savings among clients on average. However, many savers appear to overestimate their ability to stick to their commitments, even with self-imposed penalty features.
Recent research suggests that droughts may impact farmers’ cognition in addition to their agricultural income. As water becomes scarcer and the risk of a poor harvest increases, farmers may focus so much attention on the availability of water that they perform worse on other mental tasks.
Informal savings groups are a common way for low-income households around the developing world to save for future expenses. Can these savings groups be integrated with mobile money to provide members with a convenient and safe platform for saving and making payments? Do households benefit from access to the additional financial services offered on a mobile money platform? This project aims to address these questions among poor households across Southern and Central Philippines.
Unpacking the theory behind why and how sending people text messages improves their saving and and payment behaviors, and deriving a more robust set of prescriptions on how to implement effective messaging programs.
Evaluating the Take-up, Usage, and Impact of Mobile Money Accounts
The aim of this study is to identify and alleviate specific constraints to mobile money adoption in Pakistan, such as lack of information about the value of the product or lack of knowledge on how to use mobile money. In collaboration with a leading telecom operator, this study is piloting a referral campaign to incentivize existing mobile money account holders to refer their friends or relatives to the mobile money platform.
In the rapidly monetizing Amazon Basin many communities lack a savings culture and financial tools to promote the accumulation of money for larger purchases and emergencies. This study explores the use of lockboxes to curb impulsivity and safeguard money.
Even when there are no official school fees, the financial burden of purchasing uniforms, books, and other school supplies prevents low-income students from remaining in school. In Uganda, researchers tested whether a school-based savings program improved academic performance and reduced dropout rates by enabling students and their families to save for school-related expenses.
Advances in payments technology have the potential to improve the efficiency of slow and corrupt public welfare programs. Researchers tested how Smartcards, which coupled electronic transfers with biometric authentication, affected the functioning of two government welfare schemes in India. They found that even though the new Smartcard system was not fully implemented, it resulted in a faster and less corrupt payments process without adversely affecting program access.
Financial literacy is commonly thought to lead to increased usage of financial products and savings products in particular. However, few financial institutions include financial literacy materials in their advertising. Financial institutions may fail to provide ‘information marketing’ because they believe that ‘persuasion marketing’, or convincing the customer of the superiority of that institution, is more effective. This study assesses the impact of informative, persuasive, and a mix of informative and persuasive marketing to community members in the Philippines.
The majority of the poor lack access to bank accounts and rely on informal savings mechanisms (Banerjee and Duflo 2007)1. There is little evidence on how poor households’ behavior changes when offered access to a traditional savings account. Would poor households open a basic savings account if given access to one? Would this access help them accumulate small sums into increased savings over time?
Research Pilots Supported by the Financial Services for the Poor Initiative:
While insurance has long been used to manage agricultural production risks stemming from extreme weather events and other exogenous shocks in developed countries, its adoption has been limited in developing countries. In Bangladesh, research indicates that farmers have low demand for stand-alone weather insurance products and a desire to have additional funds to rely on, independent of weather outcomes. By bundling a micro-savings product with index insurance the researchers intend to increase the demand for these types of financial products.
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.
Preliminary Research for an Impact Evaluation of Islamic Mobile Micro-Savings and Credit
The absence of adequate infrastructure and functioning central banking systems in many post-conflict environments limits access to formal banking services for large segments of the population. The rise of mobile banking and electronic transfer systems may provide a platform to extend formal credit and savings products to excluded populations in such settings, without requiring large investments in physical infrastructure. This preparatory research project looks at economic conditions of small business owners who are likely to become clients of a new Sharia-compliant, mobile-based credit and savings accounts scheme.
Testing Variations in Soft-Commitment Savings Product Designs
Low savings may be the result of a variety of behavioral factors, from (or such as) lack of self-control to present-bias preferences, in which today’s intentions for the future and tomorrow’s actions deviate. One solution comes in the form of hard-commitment savings products where there are financial penalties for not complying with the voluntarily-set savings plan. While several studies have found that such commitment devices can be effective when used, a common problem is low take-up rates. The proposed project aims to provide savers with the option to save in a “soft-commitment product” in which there are no fees or penalties to withdraw funds but savers are encouraged to save enough to achieve their objective.
Saving for Birth
The goal of this study is to understand the impact of financial and informational incentives on the savings behavior of pregnant women who are offered a commitment account where payments can only be made towards maternal healthcare expenses.
Of late, a market for micro-pensions—defined as systematic contribution plans towards pensions for informal sector workers—has emerged. To determine how such long-term saving products might help solve the problem of old-age income security for informal sector workers in changing social contexts, an improved understanding of the behavioral, economic, and institutional barriers to participation is required. This project focuses on disentangling the relative impact of different features of micropensions product on household take-up and expected amount of yearly contribution.