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Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya

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  • Dupas, Pascaline
  • Robinson, Jonathan

Abstract

This paper presents results from a field experiment designed to test whether savings constraints prevent the self-employed from increasing the size of their businesses. We opened interest-free savings accounts in a local village bank in rural Kenya for a randomly selected sample of poor daily income earners (such as market vendors), and collected a unique dataset constructed from selfreported logbooks that respondents filled on a daily basis. Despite the fact that the savings accounts paid no interest and featured substantial withdrawal fees, take-up and usage was high among women. In addition, we find that the savings accounts had substantial, positive impacts on productive investment levels and expenditures for women, but had no effect for men. These results imply that a substantial fraction of daily income earners face important savings constraints and have a demand for formal saving devices (even for those that offer negative de facto interest rates). We also find some suggestive evidence that female entrepreneurs draw down their working capital in response to health shocks, and that the accounts enabled the treatment group to cope with these shocks without having to liquidate their inventories. JEL Codes: O12, G21, L26

Suggested Citation

  • Dupas, Pascaline & Robinson, Jonathan, 2008. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," Santa Cruz Department of Economics, Working Paper Series qt01x12117, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt01x12117
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    Cited by:

    1. van Rooyen, C. & Stewart, R. & de Wet, T., 2012. "The Impact of Microfinance in Sub-Saharan Africa: A Systematic Review of the Evidence," World Development, Elsevier, vol. 40(11), pages 2249-2262.
    2. Mukhopadhyay, Jyoti Prasad, 2014. "Does access to microfinance affect consumption inequality? :evidence from a randomized controlled trial in Andhra Pradesh, India," MPRA Paper 58674, University Library of Munich, Germany.
    3. Michal Bauer & Julie Chytilova & Jonathan Morduch, 2012. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India," American Economic Review, American Economic Association, vol. 102(2), pages 1118-1139, April.
    4. Lowicki-Zucca, Massimo & Walugembe, Patrick & Ogaba, Innocent & Langol, Saul, 2014. "Savings groups as a socioeconomic strategy to improve protection of moderately and critically vulnerable children in Uganda," Children and Youth Services Review, Elsevier, vol. 47(P2), pages 176-181.
    5. McLaughlin, Shannon & Bozzola, Martina & Nugent, Anna, 2022. "The role of savings and credit to cope with shocks in Malawi. Considerations for nutrition," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321155, Agricultural Economics Society - AES.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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