Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi

In recent decades, interest has grown about interventions intended to alleviate savings constraints faced by agricultural labor in developing countries.The researchers conducted a randomized field experiment to evaluate the effect of facilitating saving in a formal savings account on agricultural inputs. 299 groups of 10-20 Malawian tobacco farmers were randomized into an "ordinary" treatment group, a "commitment" treatment group, or a control group. Farmers in all treatment groups were offered assistance opening a savings account with direct deposit of their tobacco proceeds, while the commitment treatment group receive and additional offer of assistance setting up an additional savings account with a commitment device that only allowed deposited funds to be withdrawn after at a predetermined date in the future. Farmers in the control group were not prohibited from opening savings accounts, but received no assistance in doing so. A second dimension of the intervention that was intended to test the effect public knowledge on saving and investment behavior using a raffle was implemented, but take-up was too low for the PIs to draw meaningful conclusions.

The researchers found positive, statistically significant, and economically significant treatment effects on several agricultural input measures, such as land cultivated and monetary value of agricultural inputs. Similar results were found on outcome measures such as crop sale proceeds, farm profits, and household expenditures.

However, on average the majority of funds were withdrawn soon after being deposited, and the amounts which were saved were roughly one fifth of the value of the additional inputs. The PIs conclude that alleviating savings constraints is not the primary mechanism through which the treatment affects the outcomes.

2009-03-01

2009-05-31

Deposits/Withdrawals, Account balances, Agricultural outcomes from the next growing season, Household expenditure after the next growing season, Household financial interactions within social network, Future use of financial products

3150 Malawian tobacco farmers in 299 groups of 10-20 were randomly selected into one of three experimental arms: a control of 42 groups, an "ordinary" treatment of 130 groups, or a "commitment" treatment of 127 groups. Randomization was stratified by location, tobacco type grown, and week of scheduled interview. The ordinary treatment group received an offer of assistance setting up a standard savings account (2.5% APY) with direct deposit of their tobacco sale proceeds. The commitment treatment group received the same offer as the ordinary group, but with an offer of additional assistance to open up a second savings account with a commitment feature. The commitment savings account disallowed withdrawal of deposited funds until a pre-selected date, except in documented cases of extreme hardship. The control group was not prohibited from opening up any account they chose, but did not receive any offer of assistance.

The PIs developed two OLS specifications. The first included a single indicator variable for assignment to any treatment. The second included separate indicator variables for the two treatment groups. Both models included control variables for stratification and household characteristics. The PIs collected data from administrative records of the participating bank, as well as from a baseline survey conducted from February to April 2009 and an endline survey conducted from July to September 2010.

Randomization done by computer

Randomization at the club level, stratified by location, tobacco type, and week of scheduled interview

Yes

299 farmer clubs at baseline survey

3150 farmers at baseline survey

Control group: 42 farmer clubs; Ordinary savings account, no raffle: 43 farmer clubs; Ordinary savings account, private raffle: 43 farmer clubs; Ordinary savings account, public raffle: 44 farmer clubs; Ordinary and Commitment savings accounts, no raffle: 42 farmer clubs; Ordinary and Commitment savings accounts, private raffle: 42 farmer clubs; Ordinary and Commitment savings accounts, public raffle: 43 farmer clubs

We implemented a randomized intervention among Malawian farmers aimed at facilitating formal savings for agricultural inputs. Treated farmers were offered the opportunity to have their cash crop harvest proceeds deposited directly into new bank accounts in their own names, while farmers in the control group were paid harvest proceeds in cash (the status quo). The treatment led to higher savings in the months immediately before the next agricultural planting season and raised agricultural input usage in that season. We also find positive treatment effects on subsequent crop sale proceeds and household expenditures. Because the treatment effect on savings was only a small fraction of the treatment effect on the value of agricultural inputs, mechanisms other than alleviation of savings constraints per se are needed to explain the treatment’s impact on input utilization. We discuss other possible mechanisms through which treatment effects may have operated.

Lasse Brune, Xavier Giné, Jessica Goldberg, and Dean Yang, "Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi," Economic Development and Cultural Change 64, no. 2 (January 2016): 187-220.

http://www.journals.uchicago.edu/doi/10.1086/684014