Commitments to Save - Innovations for Poverty Action

Commitments to Save:
A Field Experiment in Rural Malawi
Lasse Brune
University of Michigan
Xavier Giné
World Bank
Jessica Goldberg
University of Michigan
Dean Yang
University of Michigan
1

The mainstays of Malawi’s economy
2

Raising Malawian agricultural productivity
• Government’s main approach to raising agricultural
productivity has been large-scale fertilizer subsidies for
smallholders
– 11% of government budget in 2010/11
– But not sustainable: requires continued donor
support
• An open question: can improvements in rural financial
services improve farmer input utilization without
external subsidies?
3

Raising farm output with rural finance
• For today: results from the 3 rd of a series of
experiments in rural Malawi aimed at raising farm
output via financial service provision
• Insure farmers against adverse events
– Provide insurance against poor rainfall
• Facilitate credit for agricultural inputs
– Improve repayment via biometric identification
• Encourage farmers to save for their own input
purchases
– Facilitate access to ordinary and “commitment”
savings accounts
4

Raising farm output with rural finance
• For today: results from the 3 rd of a series of
experiments in rural Malawi aimed at raising farm
output via financial service provision
• Insure farmers against adverse events
– Provide insurance against poor rainfall
• Facilitate credit for agricultural inputs
– Improve repayment via biometric identification
• Encourage farmers to save for their own input
purchases
– Facilitate access to ordinary and “commitment”
savings accounts
5

Summary
• Facilitating commitment savings for smallholder cash crop
farmers in Malawi has substantial impacts on:
– Savings prior to next planting season
– Agricultural inputs applied in next season
– Access to funds during next lean (pre-harvest) period
– Crop sales at next harvest
– Food and total expenditures after next harvest
• Impact of facilitating “ordinary” accounts not as large or
statistically significant
• Impacts likely due to reduced sharing with social network
6

Vicious circles in input or credit provision
Provision of
inputs
• E.g., via subsidies or
credit
Higher
harvest
income
Earnings
dissipated
prior to next
season
7

Vicious circles in input or credit provision
Provision of
inputs
• E.g., via subsidies or
credit
Higher
harvest
income
Earnings
dissipated
prior to next
season
Why do farmers have
trouble maintaining
savings between one
harvest and the next?
8

Increased incomes via savings facilitation
Input purchases
financed by both
credit and
savings
Input purchases
without credit
Saving for future
input purchases
Initial provision
of inputs
9

Increased incomes via savings facilitation
Input purchases
financed by both
credit and
savings
Input purchases
without credit
Saving for future
input purchases
Focus of this project
Initial provision
of inputs
10

Why might farmers have trouble saving?
• Impatience
– Value the present much more
than the future
• Self-control problems
– Want to save for future, but
often give in to temptation to
spend now
• Social network makes high demands
for sharing of resources
– Informal village insurance
systems
11

Why might farmers have trouble saving?
• Impatience
– Value the present much more
than the future
• Self-control problems
– Want to save for future, but
often give in to temptation to
spend now
“Psychological”
phenomena
• Social network makes high demands
for sharing of resources
– Informal village insurance
systems
12

Why might farmers have trouble saving?
• Impatience
– Value the present much more
than the future
• Self-control problems
– Want to save for future, but
often give in to temptation to
spend now
• Social network makes high demands
for sharing of resources
– Informal village insurance
systems
What our
experiment
potentially
addresses
13

Why might farmers have trouble saving?
• Impatience
– Value the present much more
than the future
• Self-control problems
– Want to save for future, but
often give in to temptation to
spend now
• Social network makes high demands
for sharing of resources
– Informal village insurance
systems
A novel subexperiment
tests this in
particular
14

The agricultural cycle in Malawi
Rainy season
May
June
July
August
September
October
November
December
January
February
March
April
Harvest
Planting
“Hungry season”
15

The agricultural cycle in Malawi
Rainy season
May
June
July
August
September
October
November
December
January
February
March
April
Harvest
Planting
Savings
need to
span this
period
“Hungry season”
16

Key questions
• What is the impact of facilitating access to
and deposits into savings accounts at the
time of harvest?
• Does provision of “commitment” savings
accounts have greater impacts?
17

Commitment savings
• Idea: allow customers to voluntarily restrict own
access to savings
• In practice:
– Allow customers to put funds into a special account
where their access is restricted for defined period
– Customers choose “release date” of funds
• Why might this enhance savings?
– Helps deal with self-control problems
– Also may help resist demands from social network
18

Related past work
• Ashraf, Karlan, and Yin (2006): Offering
commitment accounts in Philippines leads to higher
savings
• Dupas and Robinson (2010): Savings accounts
have positive effects on investment and profits
among small market sellers in Kenya
• Duflo, Kremer, Robinson (2010): small incentive to
buy fertilizer early (right after harvest) has big
effects on subsequent fertilizer use in next season
19

The intervention
• Treatments involve facilitating opening of and deposit
into savings accounts
– Help with account opening procedures
– Direct deposit of cash crop sales into individual
farmer accounts
• Study participants randomly allocated to control group
or one of the treatments
• Sample: tobacco farmers who are current loan
customers of OIBM
• Collaborating institution: Opportunity International
Bank of Malawi (OIBM)
– Exploit existing direct funds transfer system from
central auction system
20

Two types of savings treatments
1. Offer of ordinary savings account only
2. Offer of ordinary plus commitment accounts
21

OIBM savings account details
• By design, other features of ordinary and commitment
accounts are identical
• Interest rate: 2.5% p.a., accrues quarterly
• Account opening fee: MK 500
• No monthly fee
• Minimum balance: MK 1000
• Closing fee: MK 1000
• Maximum of 3 transactions per month w/o fees and MK
25 per transaction thereafter
22

Project timing
Baseline + offer
of savings
accounts:
Apr-May 2009
Endline survey:
Jul-Sep 2010
April
May
June
July
August
September
October
November
December
January
February
March
April
May
June
July
August
September
2009 harvest
Planting
“Hungry season”
2010 harvest
23

40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Deposits, pre-planting
4,685
21,809
35,287
Control Ordinary Ordinary +
commitment
Note: Exchange rate is roughly MK145/USD.
24

40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Deposits, pre-planting
4,685
21,809
35,287
Control Ordinary Ordinary +
commitment
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Withdrawals, pre-planting
4,054
21,342
33,161
Control Ordinary Ordinary +
commitment
Note: Exchange rate is roughly MK145/USD.
25

Deposits, pre-planting
40,000
35,000
35,287
30,000
25,000
21,809
20,000
15,000
10,000
5,000
0
4,685
Control Ordinary Ordinary +
commitment
40,000
35,000
30,000
25,000
20,000
15,000
Net deposits, pre-planting
40,000
35,000
30,000
Withdrawals, pre-planting
33,161
10,000
5,000
0
631 467
2,126
Control Ordinary Ordinary +
commitment
25,000
20,000
21,342
15,000
10,000
5,000
4,054
0
Control Ordinary Ordinary +
commitment
26
Note: Exchange rate is roughly MK145/USD.

40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Deposits, pre-planting
4,685
21,809
35,287
Control Ordinary Ordinary +
commitment
Withdrawals, pre-planting
4,054
21,342
33,161
Control Ordinary Ordinary +
commitment
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Net deposits, pre-planting
631 467
2,126
Control Ordinary Ordinary +
commitment
Commitment treatment generates:
• ~$243 in deposits
• withdrawals slightly lower but similar
magnitude
• positive net accumulation
Note: Exchange rate is roughly MK145/USD.
27

• Compared to control group, commitment treatment leads to 72%
higher agricultural inputs in next season
120,000
Inputs
100,000
97,199
80,000
70,055
60,000
56,519
40,000
20,000
0
Control Ordinary Ordinary + commitment
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
28

• Compared to control group, commitment treatment leads to 72%
higher agricultural inputs in next season
120,000
Inputs
100,000
97,199
80,000
60,000
56,519
70,055
This increase
is statistically
significantly
different from
zero
40,000
20,000
0
Control Ordinary Ordinary + commitment
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
29

• … and 61% higher total crop sales at harvest time
180,000
Crop sales
160,000
161,089
140,000
120,000
117,028
100,000
100,295
80,000
60,000
40,000
20,000
0
Control Ordinary Ordinary + commitment
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
30

• As a result, weekly food expenditure is roughly 25% higher in commitment
group at time of post-harvest survey
2,000
Food expenditure (7 day recall)
1,800
1,734
1,600
1,527
1,400
1,384
1,200
1,000
800
600
400
200
0
Control Ordinary Ordinary + commitment
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
31

• … and total expenditure is 31% higher in commitment group
16,000
14,000
Total expenditure (30 day recall)
12,521
14,718
12,000
11,234
10,000
8,000
6,000
4,000
2,000
0
Control Ordinary Ordinary + commitment
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
32

• Commitment group withdraws more funds during planting season. May mean
better consumption smoothing during the “hungry” season.
0
0
Net deposits, planting
Control Ordinary Ordinary + commitment
-500
-639
-1,000
-1,500
-2,000
-2,500
-2,440
-3,000
Note: Dependent variable expressed in Malawi kwacha. Exchange rate is roughly MK145/USD.
33

Why does commitment savings help?
• Two alternatives:
1. Solution to self control problems
2. Reduces sharing with social network
• Other analyses we have done point to #2:
– Impact of commitment savings is higher for
individuals who make more transfers at baseline
• But little relationship with hyperbolic preferences
– Commitment savings reduces transfers to other
households
– Impact of commitment is smaller when others in the
village are given information on an individual’s bank
balances
34

Balance revelation treatments
• Other additional treatments, randomized at the outset
as well, test impact of revealing one’s account balances
to others in the village
• For these additional treatments, we held a raffle
drawing where each farmer would get 1 raffle ticket per
MK1000 saved as of certain dates (Aug and Oct 2009)
– Farmers know of this at outset
• In these treatments, we randomly varied whether an
individual’s number of raffle tickets were announced…
– in public (in front of other group members)
– in private (out of sight of other group members)
35

Effect of public and private raffles
120,000
Inputs
100,000
97,199
80,000
60,000
56,519
70,055
62,907
71,984
40,000
20,000
0
Control Ordinary Ordinary +
commitment
Ordinary +
commitment, public
raffle
Ordinary +
commitment, private
raffle
36

Effect of public and private raffles
120,000
Inputs
100,000
97,199
80,000
60,000
56,519
70,055
62,907
71,984
40,000
20,000
0
Control Ordinary Ordinary +
commitment
Ordinary +
commitment, public
raffle
Ordinary +
commitment, private
raffle
37

Effect of public and private raffles
Inputs
120,000
100,000
80,000
70,055
97,199
This drop is
statistically
significantly
different from
zero
71,984
62,907
60,000
56,519
40,000
20,000
0
Control Ordinary Ordinary +
commitment
Ordinary +
commitment, public
raffle
Ordinary +
commitment, private
raffle
38

External validity: some caveats
• We do not test impact of direct deposit itself, which may be
important
– Aside from the direct deposits, other deposits into
accounts very low
– So not clear that simply setting up commitment accounts
would have high impact without the direct deposit
• Most applicable to cash crop farmers where sale proceeds can
be channeled directly into bank accounts by the crop buyer
– Higher income on average than typical farmer
– But also relatively easy to access – “low hanging fruit”
• Potentially easy means for MFIs to raise farm inputs and
incomes for current loan customers
– Common for lenders to have direct funds-transfer
arrangements with cash crop buyers for loan recovery
– Current loan customers can simply be offered direct
deposit of crop proceeds into commitment accounts
39

In sum
• Facilitating commitment savings for smallholder cash crop
farmers in Malawi has substantial impacts on:
– Savings prior to next planting season
– Agricultural inputs applied in next season
– Access to funds during next lean (pre-harvest) period
– Crop sales at next harvest
– Food and total expenditures after next harvest
• Impact of facilitating “ordinary” accounts not as large or
statistically significant
• Impacts likely due to reduced sharing with social network
• Overall welfare impact ambiguous because unclear impact on
others in social network
– Future research should investigate further impacts on
others in social network
40

Extra slides
41

Malawi
• Small, densely populated
– Pop. 13.6 million
• 90% of population works
own smallholder farms
• Main crops:
– Maize (for food)
– Tobacco (for export)
• Low input utilization in
agriculture
– Especially: fertilizer
42

Measuring impacts
• Outcomes in OIBM admin data and follow-up survey of
farmers (July-Sep 2010)
• Sample: ~1,450 farmers in ~160 farmer clubs
– Randomly divided at start of study into 3 groups
(control + 2 treatment groups)
• Impacts of treatments on:
– Deposits and withdrawals prior to planting season
– Agricultural inputs applied during planting season
– Access to funds during “hungry” season (preharvest)
– Crop sales at harvest
– Expenditures, post-harvest
43

Regression results: deposits and withdrawals
Impact of treatments
Dependent variable:
Deposits, preplanting
Withdrawals,
pre-planting
Net deposits,
pre-planting
Deposits,
planting
Withdrawals,
planting
Net deposits,
planting
Treatment: ord. + commitment 30,602.42*** -29,107.27** 1,495.15 537.57 -4,187.53** -3,649.96**
(11,749.23) (11,317.28) (1,045.82) (2,033.24) (2,111.40) (1,649.68)
Treatment: ordinary 17,124.17*** -17,288.07*** -163.89 -2,376.15 527.11 -1,849.04
(6,468.04) (6,228.34) (658.63) (1,620.51) (727.23) (1,410.78)
Constant 4,684.75** -4,053.66** 631.09 2,875.68* -1,665.26** 1,210.41
(2,297.42) (1,843.76) (513.70) (1,606.77) (654.71) (1,384.06)
P-value of F-test: treatment
effects identical 0.303 0.352 0.100 0.023 0.022 0.057
*** p

Regression results: outcomes
Impact of treatments
Dependent variable: Inputs (MK) Crop sales (MK)
Food
expenditures
(7-day recall)
Total
expenditures
(last 30 days)
Transfers made
in last year
Transfers
received in last
year
Treatment: ord. + commitment 40,679.66** 60,794.30* 349.60* 3,483.50** -786.33** 329.40
(16,091.17) (31,611.18) (183.96) (1,558.93) (343.78) (624.66)
Treatment: ordinary 13,536.08 16,732.57 143.10 1,286.66 -233.07 1,553.27
(9,677.33) (17,782.38) (152.24) (1,113.50) (426.98) (1,122.56)
Constant 56,518.88*** 100,294.95*** 1,383.97*** 11,234.03*** 2,739.80*** 3,573.03***
(5,143.78) (11,161.70) (104.79) (680.14) (301.75) (418.68)
P-value of F-test: treatment
effects identical 0.119 0.179 0.272 0.187 0.110 0.285
*** p