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

Abstract

To what extent does the lack of access to formal nancial services impede business growth in low-income countries? While most research on this issue has so far focused on credit market failures, this paper focuses on the role of access to formal saving services. We conducted a field experiment in which a randomly selected sample of self-employed individuals in rural Kenya got access to an interest-free bank account. As the bank charged substantial withdrawal fees, the de facto interest rate on the account was negative. Despite this, take-up and usage of the account was high among market vendors, especially women. Access to an account had a substantial, positive impact on levels of productive investments among market women, and, within 6 months, led to higher income levels, as proxied by expenditures. These results imply that a substantial fraction of women entrepreneurs have di¢ culty saving and investing as much as they would like, and have a demand for formal saving devices even those that o¤er negative interest rates. Our results also imply a relatively high rate of return to capital for the women in our sample, estimated at 5.5% per month at the median.