Abstract
• We studied the effects of a program that strengthened savings incentive mechanisms without coercion. • The project was set up by The Small Enterprise Foundation, a microfinance institution based in South Africa. • The experiment had a quasi-natural approach as it was implemented in non-randomly selected locations. • DID estimates show a persistent improvement in the savings habits of customers , but suggest a slow accumulation of savings. • Asking microfinance clients to identify a savings goal and commit to a regular deposit to achieve it is a promising avenue. We studied the effects of a pilot project that strengthened savings incentive mechanisms. The project was established by The Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa. The program introduced a savings stimulus in the form of a Goal Card : clients subscribing to this (non-coercive) tool were required to identify a savings goal and to commit to regular payments to reach it. The experiment had a quasi-natural approach as it was implemented by SEF in non-randomly selected locations. Difference-in-differences estimates show improved savings habits among those of the foundation’s customers who were involved in the program, compared to the counterfactual that are identified using propensity score matching. The effect of the program manifested in its second semester, suggesting a persistent change of habits but a slow accumulation of savings. We conclude that asking microcredit customers to identify a savings goal and commit to a regular savings amount to achieve it is a promising savings incentive mechanism.
Highlights
Savings are often the only way poor can manage to pay for major unexpected events or take advantage of a business opportunity
We study the effects of a pilot project set up by the Small Enterprise Foundation (SEF), a leading microfinance institution based in South Africa
The overall impact of the Goal Card pilot on the savings balance of the clients belonging to the treated group is positive and significant, as shown by the parameter associated with the interaction term Treatedi * Programit
Summary
Savings are often the only way poor can manage to pay for major unexpected events or take advantage of a business opportunity. The poor rarely have access to voluntary deposit services offered by formal or semi-formal institutions. Instead, they resort to informal mechanisms, which are often high risk, illiquid and rigid. When formal or semi-formal deposit services are available, there is a wide consensus on the fact that a form of obligation can play an important role in helping the poor save. Many microfinance institutions apply some kind of withdrawal restrictions or other mechanisms that share the common feature of assistance with deposit discipline. The evidence on the effectiveness of commitment devices and withdrawal restrictions is contrasting
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