Center for Effective Global Action

To what extent does the lack of access to formal financial 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 formalsavingservices. 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 our sample of market vendors, primarily composed of 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 difficulty saving and investing as much as they would like, and have a demand for formal saving devices - even those that offer negative interest rates. Our results also imply a relatively high upper bound on the rate of return to capital for the women in our sample, estimated at 5.5% per month at the median. Note that these results do not necessarily imply gender differences: our sample of male entrepreneurs is too small to generate results for that group.