Facilitating Savings for Agriculture: Field Experimental Evidence from Malawi


Researchers

Abstract:

Agriculture is a critically important part of the Sub-Saharan African economy, employing two-thirds of its labor force and contributing about one-third of its GDP growth. Policies for improving agricultural productivity in the region thus have the potential to make a significant difference to households and to the national economy. Brune et al seek to learn whether expanding the use of formal savings accounts among farmers can help to raise agricultural output and improve household wellbeing.  In a field experiment conducted to address this question, they found that farmers whose harvest payments were deposited to individual bank accounts, rather than distributed as cash from a club account, ultimately spent more money on agricultural inputs before the next planting season and produced more crops.

Brune et al conducted a randomized controlled trial in Malawi, one of the least-developed countries in Africa, beginning before the May-July 2009 harvest season. Farmers who agreed to participate in their experiment all received training on basic financial principles. Some of the farmers were randomly assigned to a control group and were paid for their harvest in cash distributions through group accounts, as is typical in the area. Those assigned to the treatment group were paid by deposits to personal accounts at a nearby bank, opened for them by the experimenters.  The majority of funds deposited into the individual accounts were quickly withdrawn, but direct deposit did increase the amount of savings available at the next planting season. In the next season, farmers in the direct deposit treatment group were observed to have spent 13% more on agricultural inputs and to have 21% more agricultural output than those in the control group. The large increase in expenditure on agricultural inputs is surprising, as the increase proved to be four times larger than the amount available in the bank accounts at planting season. This implies that the increase in spending cannot just be a result of more assets in save savings accounts. While the additional reasons for the increase are unclear, it is possible that increased bank savings improve access to outside lending or that establishing formal savings accounts causes people to take saving, even outside the bank, more seriously.

No matter the mechanism, it is clear that the farmers assigned to direct deposit into formal savings accounts saw increased agricultural output and thus earned more money to support themselves and their families. Policy makers should strongly consider including similar programs that expand use of formal savings in farming communities as part of their anti-poverty policies. Such programs are comparatively cheap, requiring no expenditure on subsidies or provision of credit, but hold the potential to promote substantial increases in agricultural output and income.

 

Citation:

Brune, L., Giné, X., Goldberg, J., & Yang, D. (2016). Facilitating savings for agriculture: Field experimental evidence from Malawi. Economic Development and Cultural Change, 64(2), 187-220.