Banking the Poor: Evidence from a Savings Field Experiment in Malawi

Abstract

The poor often save through informal methods outside of the financial systems of developing countries, restricting the extent to which their savings can help fuel growth. Moreover, a growing number of studies show large positive effects on outcomes among the poor from possessing a savings account. However, the vast majority of adults in the developing world do not have even a basic account. This paper uses a randomized field experiment in Malawi with over 2,000 households to examine an innovative approach to spur financial inclusion. The results show that periodic informational visits to a village can sharply increase take-up and use of savings accounts. The impact on adoption probability depends on a few key household characteristics, its effect the strongest for households in middle wealth categories, with educated heads, living outside the immediate vicinity of the bank. Results show account usage is robust among induced adopters. The randomly assigned information intervention is then used to identify sharp causal impacts of savings adoption on agricultural production inputs, crop income, and food consumption among farming households in poor rural areas. These results help extend a fast-growing literature on formal savings by examining a novel and effective method to encourage uptake and better understand the impact of savings accounts among poor farmers – the largest occupational group among the poor.

Keywords: Savings accounts, financial access, investment, farm production, poverty alleviation

JEL Classification: D14, G21, I30, O12, O16