Savings constraints and microenterprise development: Evidence from a field experiment in Kenya Pascaline Dupas and Jonathan Robinson NBER Working Paper No. 14693 January 2009, Revised March 2012 JEL No. G21, L26, O12 Abstract Does limited access to formal savings services impede business growth in poor countries? To shed light on this question, we randomized access to non-interest-bearing bank accounts among two types of self-employed individuals in rural Kenya: market vendors (who are mostly women) and men working as bicycle-taxi drivers. Despite large withdrawal fees, a substantial share of market women used the accounts, were able to save more, and increased their productive investment and private expenditures. We see no impact for bicycle-taxi drivers. These results imply significant barriers to savings and investment for market women in our study context. Further work is needed to understand what those barriers are, and to test whether the results generalize to other types of businesses or individuals. 1 Introduction Hundreds of millions of people in developing countries earn their living through small-scale business (World Bank, 2004; de Soto, 1989). Many of these entrepreneurs do not have access to even the most basic of financial services, such as a simple bank account in which they can save money. Given that many entrepreneurs need to save up daily profits for lumpy investments or set aside some money to use for unexpected shocks, is it possible that not having a place to save securely impedes business success? In this paper, we test this directly by expanding access to bank accounts for a randomly selected sample of small informal business owners in one town of rural Western Kenya. The sample is composed primarily of market vendors (the great majority of whom are women) and bicycle-taxi drivers (all of whom are men), and includes 250 individuals in total. We use two main data sources to measure impacts: administrative data from the bank on account usage, and a rich dataset constructed from daily logbooks which were kept by respondents. The logbooks include detailed information on many outcomes, including formal and informal savings, business investment, and expenditures. There are three main findings. First, market women in the treatment group used the bank accounts quite actively, and increased their total savings on average. Treated bicycle-taxi drivers (all of whom were men) used the accounts much less and did not increase their total savings. The high account usage rate among market women is especially noteworthy because the account did not pay out any interest and included substantial withdrawal fees, so that the de facto interest rate on deposits was negative. Clearly, if female vendors did not have trouble saving on their own, they should not have paid the bank for the right to save. That they voluntarily did so suggests that they face negative private returns on the money they save informally. Second, market women in the treatmentSavings constraints and microenterprise development: Evidence from a field experiment in Kenya Pascaline Dupas and Jonathan Robinson NBER Working Paper No. 14693 January 2009, Revised March 2012 JEL No. G21, L26, O12 Abstract Does limited access to formal savings services impede business growth in poor countries? To shed light on this question, we randomized access to non-interest-bearing bank accounts among two types of self-employed individuals in rural Kenya: market vendors (who are mostly women) and men working as bicycle-taxi drivers. Despite large withdrawal fees, a substantial share of market women used the accounts, were able to save more, and increased their productive investment and private expenditures. We see no impact for bicycle-taxi drivers. These results imply significant barriers to savings and investment for market women in our study context. Further work is needed to understand what those barriers are, and to test whether the results generalize to other types of businesses or individuals. 1 Introduction Hundreds of millions of people in developing countries earn their living through small-scale business (World Bank, 2004; de Soto, 1989). Many of these entrepreneurs do not have access to even the most basic of financial services, such as a simple bank account in which they can save money. Given that many entrepreneurs need to save up daily profits for lumpy investments or set aside some money to use for unexpected shocks, is it possible that not having a place to save securely impedes business success? In this paper, we test this directly by expanding access to bank accounts for a randomly selected sample of small informal business owners in one town of rural Western Kenya. The sample is composed primarily of market vendors (the great majority of whom are women) and bicycle-taxi drivers (all of whom are men), and includes 250 individuals in total. We use two main data sources to measure impacts: administrative data from the bank on account usage, and a rich dataset constructed from daily logbooks which were kept by respondents. The logbooks include detailed information on many outcomes, including formal and informal savings, business investment, and expenditures. There are three main findings. First, market women in the treatment group used the bank accounts quite actively, and increased their total savings on average. Treated bicycle-taxi drivers (all of whom were men) used the accounts much less and did not increase their total savings. The high account usage rate among market women is especially noteworthy because the account did not pay out any interest and included substantial withdrawal fees, so that the de facto interest rate on deposits was negative. Clearly, if female vendors did not have trouble saving on their own, they should not have paid the bank for the right to save. That they voluntarily did so suggests that they face negative private returns on the money they save informally. Second, market women in the treatment