First Randomized Trial of Microsavings

I fear I got swept up in the disproportionate focus on credit in pouncing to blog the first randomized trial of microcredit while neglecting its counterpart for microsavings. I learned about it from Jonathan Morduch's blog in February just as I was launching this one. (Hat tip to Daniel Radcliffe for nudging it back up my reading list.)Pascaline Dupas and Jonathan Robinson, both rising stars in economics, performed the study. They did so outside the big evaluation houses, J-PAL and IPA, and have the (small) budget and sample to prove it. Their sample contains about 200 people, compared to nearly 7,000 households in J-PAL's microcredit evaluation. Nevertheless, the paper strikes this amateur economist (have I mentioned I practice without a license?) as creative, careful, and seminal.In the rural market town of Bumala on the road between Nairobi and Kampala, Dupas and Robinson worked with a local "village bank" to offer free savings accounts to randomly selected "market vendors, bicycle taxi drivers, hawkers, barbers, carpenters, and other artisans"---existing microentrepreneurs. The accounts paid no interest and in fact charged for withdrawals, which may have been a good thing for people looking for discipline to help them save. (The village bank here is a Financial Services Association, a type of institution in Kenya that resembles the 19th century "village banks" more than the "village banks" you usually hear about today, in that members buy shares.) Uniquely among the randomized impact studies I have seen, the research team followed up with the subjects not once, through the usual door-to-door survey, but daily over several months, through logbooks not unlike the financial diaries at the heart of Portfolios of the Poor.Of the 122 people offered an account, some 67 opened one and actually used it. That's a small group with which to study impacts, yet the authors find statistically significant differences. Women invested more in their businesses and increased personal spending within 6 months. The savings accounts appeared to help them accumulate money for major purchases for their businesses, such as stock for their stores. That may have increased profits. The pattern did not hold for men. As the authors discuss, it is unclear whether the accounts helped primarily by giving women more control over their own impulses to spend rather than saving to invest, or by giving them a way to deflect family requests for money. Especially if the latter, the women's gains may have come at the expense of relatives outside the study group.Dupas and Robinson's numbers also suggest that the accounts helped women maintain financial stability when they or a family member contracted malaria; this pattern is mostly insignificant statistically, however, meaning that it might have showed up by chance.The study seems important in two respects. First, it is a gold-standard randomized trial showing that in one context, availability of savings cut poverty. That contrasts with the story so far for classical microcredit. Second, in the focus on savings and the use of logs, it sets an example for studies that I'm sure will follow. It cries out for replications with larger samples and in more places. I bet Daryl Collins of the Financial Diaries could help improve the daily logging.The paper also reminds us about the diversity of poor people. Because impact studies look for the average effect they can lead us to imagine that everyone who uses the service experiences that same, average effect. But people differ in how much they need any given financial service, in how much they perceive that they need it, in how they use it, and in how well their investments pay off.In particular, it is interesting that usage and impacts of the savings accounts were concentrated among a self-selected minority. Of those offered an account, 34% declined, 11% accepted but never used it, and another 12% made only one deposit in six months. Among those using it more, a relatively small group, mainly female, made most of the deposits and withdrawals. The reluctant embrace of savings accounts is disappointing since savings can help almost everyone, whereas not everyone should borrow. But we should not read too much into it. Perhaps some people mistrusted the village bank with good reason. Perhaps universal adoption just takes a few years.Note also that the study deliberately targeted people who are already microentrepreneurs. But Dupas and Robinson also cite a finding that only a quarter of households living on less than $2/day/person include a microentrepreneur. In this sense, the study population does not represent poor people in general. Interestingly, actual and likely entrepreneurs were the ones whose businesses appeared to benefit in the J-PAL microcredit study too (even if that did not affect bottom-line poverty indicators). I wonder if microcredit and microsavings have their biggest positive impacts on the same people---while debt, more than savings, leaves some in the less-entrepreneurial majority worse off.