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Innovations for Poverty Action (2009)

Interest Rate Subsidies and Savings Behavior in Kenya

Interest Savings Kenya

Innovations for Poverty Action

Titre : Interest Rate Subsidies and Savings Behavior in Kenya

Région /Pays : Kenya

Date : 2009

The vast majority of the world’s poor save, yet they often do so informally even when research findings suggest that accessing savings accounts at formal institutions can help low-income households increase their savings, investments, and ultimately their income. Could temporary interest rate incentives increase formal account use among the poor ? A randomized evaluation in rural Kenya found that offering higher short-term interest rates on a savings account substantially increased bank account use two and a half years for after the promotional rate ended. Offering the interest rate promotion on individual bank accounts also increased household income via growth in entrepreneurship, while offering the promotion on joint bank accounts increased investment in household goods and led to greater spousal agreement on financial matters.

The vast majority of the world’s poor lack access to formal financial services. Recent estimates suggest that 80 percent of individuals in Sub-Saharan Africa are unbanked.1 Yet this lack of access does not reflect an inability or unwillingness among households to save. Instead, low-income households in developing countries tend to save informally, often by keeping money with informal deposit collectors or saving cash at home, even though doing so can be quite costly.2 At the same time, a growing body of literature suggests that increasing access to the formal financial services, and access to savings products in particular, can increase savings, investment, and income.3 Understanding why households find saving so difficult and how to address the challenges is an important policy question. Short-term, promotional incentives may be one way to trigger changes in savings habits, but there is limited research into actual effectiveness.

Taille de l’échantillon  : 779 married couples

Innovation for Poverty Action (IPA)

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