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Micro-Savings & Informal Insurance in Villages: How Financial Deepening Affects Safety Nets of the Poor, A Natural Field Experiment

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  • Jeffrey A. Flory

    (University of Maryland)

Abstract

This paper uses a large natural field experiment to identify the effects of formal savings on interhousehold transfers in villages, and the spillover impacts of service-expansion on de facto ineligibles residing in the same community. Despite widespread interest in microfinance, spillover effects on the very poor of expanding formal financial services remain largely unexplored. This study helps fill this gap by examining evidence from an experiment which uses an information intervention that mimics naturally-occurring institutions to increase formal service adoption. It also contributes to an emerging literature on the indirect impacts of policy interventions in developing countries, often evaluated solely on the basis of how they impact direct participants and beneficiaries. In developing regions, households vulnerable to extreme poverty often rely on local safety nets based on transfers from relatives and friends, which help them smooth consumption across food-deficits and household shocks. To date, little is known about how these pre-existing practices are affected as community members begin adopting newly available formal financial services. Using a panel dataset of over 2,000 households collected during a rapid expansion of formal savings services in Central Malawi, this paper shows that experimentally boosting use of formal savings in rural areas sharply increases inter-household transfers during peak periods of hunger. The impact on transfer receipts is strongest among the poorest households, a de facto financial services-ineligible group, among whom the effects are also linked to significant changes in welfare. The strong impacts of formal savings expansion on non service-users suggests that formal finance can have much greater immediate-term effects than would be suggested by focusing exclusively on impacts experienced by service-users. The findings also highlight the sensitivity of traditional safety nets and welfare outcomes among the highly vulnerable in villages to expansion of formal financial markets.

Suggested Citation

  • Jeffrey A. Flory, 2011. "Micro-Savings & Informal Insurance in Villages: How Financial Deepening Affects Safety Nets of the Poor, A Natural Field Experiment," Working Papers 2011-008, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2011-008
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    File URL: https://econresearch.uchicago.edu/sites/econresearch.uchicago.edu/files/MFI-2011-008_0.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dean Karlan & Aishwarya Lakshmi Ratan & Jonathan Zinman, 2014. "Savings by and for the Poor: A Research Review and Agenda," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 36-78, March.
    2. Felipe Kast & Dina Pomeranz, 2013. "Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile," Harvard Business School Working Papers 14-001, Harvard Business School, revised Jun 2014.
    3. Lasse Brune & Xavier Giné & Jessica Goldberg & Dean Yang, 2016. "Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi," Economic Development and Cultural Change, University of Chicago Press, vol. 64(2), pages 187-220.
    4. Masino, Serena & Niño-Zarazúa, Miguel, 2014. "Social service delivery and access to financial innovation. The impact of Oportunidades’ electronic payment system in Mexico," MPRA Paper 53430, University Library of Munich, Germany.
    5. Dean Karlan, Aishwarya Lakshmi Ratan, Jonathan Zinman, 2013. "Savings by and for the Poor: A Research Review and Agenda-Working Paper 346," Working Papers 346, Center for Global Development.

    More about this item

    Keywords

    microfinance; formal savings; indirect effects; safety nets; poverty; food security;

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • I10 - Health, Education, and Welfare - - Health - - - General

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