Can financial products reduce poverty and vulnerability? Experimental evidence from Benin on the impact of access to saving accounts and microcredit.

点击翻译按钮获取中文摘要

Amongst many development actors and public aid donors it is commonly perceived that the poor cannot escape poverty because they are credit constrained and as such cannot invest. The main reason why they are credit constrained being the lack of collaterals. Microcredit, the practice of lending small amounts of money to the poor, is heralded as a key tool in the fight against poverty in least developed countries (LDCs). It is easy to overlook the fact that what the poor may actually desire is not a loan, but simply the ability to put their savings in a secure and reliable account. In which case the poor's interest could be best served by providing access to an affordable formal saving account (microsavings). Addressing this empirically weak spot, this project will analyse the financial needs of the poor by comparing formal (microcredit and microsavings) and informal financial services. Through a randomized controlled trial in Benin, West Africa, we will test which of these financial instruments is more effective in helping individuals to reduce poverty and vulnerability.Microcredit and microsavings are of great interest given that the vast majority of populations in LDCs have little if no access to formal finance. Most individuals in Benin use informal saving or lending mechanisms; informal due to the lack of any binding legal arrangement. In the absence of formal finance many Beninese resort to rotating savings and credit associations (ROSCAs). Participation in ROSCAs is costly and no interest is earned. Their members also bear the risk of default by other members, which frequently leads to financial loss and the breakdown of groups. ROSCA members have less flexibility in saving than they would on their own, since the group-determined contribution level is likely to differ from their individual optimal saving rate. Despite these constraints, ROSCAs enjoy popularity and are pervasive in LDCs. One can speculate that access to more secure and reliable formal financial products could lead to significant improvement in people's ability to save and invest and would reduce the impact associated with shocks the poor face on a near daily basis.To carry out our comparative analysis, we will offer access to microcredit and microsavings to different samples of individuals. This will allow to:1) Analyse what drives the demand for these financial devices and enhance our understanding of the poor's motivations for saving and investing. 2) Compare the effectiveness of microcredit vs. microsavings and examine whether formal financial services are more effective in helping individuals to escape poverty than ROSCAs. Our proposal thus directly addresses the Overarching Question 1 of the present Call.3) Investigate subsidiary effects of formal finance on consumption patterns and the use of informal finance. Does formal finance help in reducing expenditures on luxury/frivolous items? Do the poor manage better to avoid falling into a debt trap with or without formal finance? Is formal finance driving people out of ROSCAs?4) Analyse the resulting investments and their sustainability in two crucial dimensions: education and health. These are known to crucially impact long-term poverty.It is well documented that shocks, such as illness and drought, entail severe consequences on poor people's aptitudes to keep a constant path of consumption and investing in human capital. If access to microsavings can better allow people to reduce poverty and vulnerability than can microcredit, moneys earmarked for microloans might be redirected towards improving ways to savings. Scaling up access to microsavings amongst poor households might well represent a simpler, cheaper and less risky intervention compared to scaling up microcredit programs. It could also reduce the risk associated with over-indebtedness faced by many individuals. The results of this project will be of substantial interest for public agencies and donors.