This paper presents results from a field experiment in rural Kenya designed to test whether savings constraints prevent the self-employed from increasing the size of their businesses. The researchers opened interest-free savings accounts in a local village bank for a randomly selected sample of 185 poor daily income earners (such as market vendors, bicycle taxi drivers, and self-employed artisans), and collected a unique dataset from self reported logbooks which respondents filled out on a daily basis.
Despite the fact that the savings accounts paid no interest and included substantial withdrawal fees, the researchers found that:
- Formal savings accounts had substantial positive impacts on investment for women, but no effect on men.
- Adoption and usage of the accounts was high among women.
- After about six months, access to a savings account led to a 39% increase in productive investment and 13% increase in food expenditure among women micro-entrepreneurs in Kenya, suggesting that the higher investment levels led to higher income levels.
- 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).
The study also showed suggestive evidence to indicate 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.