Giving bank accounts to the unbanked rural poor in Kenya reduces their financial dependence on wealthier family members, which may then free up resources for investment, helping to spur economic development. That is the conclusion of research published in the January 2019 edition of The Economic Journal.


The study, conducted by researchers from Stanford University, University of California Santa Cruz and Wesleyan University, and implemented by Innovations for Poverty Action in Busia District in Western Kenya, rigorously tests the impact of giving free bank accounts to a random subset of 885 households. The research team examines how access to bank accounts affects how people share financial resources with family, friends and neighbours.


‘Many people in this setting don’t have formal insurance or savings accounts, and supporting friends and family when you are asked for money is very well-documented – it’s almost a requirement’, says Pascaline Dupas, associate professor of economics at Stanford University and a co-author of the study:


‘But the one-way support from urban to rural households – what are known as

“remittances” – can drain resources from the households that continuously give, which might limit their opportunities to invest in their own businesses or livelihoods.’


Savings accounts may help change that, the study suggests, by helping rural people to save and support themselves, rather than relying on their family and friend networks residing in towns far away.


The study finds usage of the savings accounts is modest on average. But it is substantial among a subset of active users: 69% of households who are offered an account open one, but only 15% make at least five transactions in the account over the 28-month period following account opening. This 15% of active users uses the account quite a bit – over two years, the average amount deposited among this group is $223 (for comparison, a typical household spends about $43 a month).


What the researchers find striking is that households offered free savings accounts are just as likely to engage in informal insurance (that is, give-and-take type of relationships) with their local network. But they are less likely to receive transfers from their relatively well-off family members in towns who had regularly sent them money before.


Data on consumption patterns indicate that the households are not harmed by this reduction in remittances, which suggests that the savings account helps to replace the safety net that their families had provided.


‘What this tells us is that extending formal financial services to the rural poor can affect relatively well-off households who live far away in urban areas’, says Jonathan Robinson of UC Santa Cruz and a co-author of the study:


‘Since the sharing of resources is so pervasive, the question this raises is whether this frees up resources of wealthier households to invest in the economy. If so, the benefits of extending these financial resources to the poorest households may extend far beyond what was previously thought. But the scale is yet to be measured.’


The researchers also point out that since only a fraction of households use the bank accounts, the question of increasing uptake of bank accounts or other savings devices is the next question.


Professor Dupas concludes: ‘Overall, our findings suggest that savings accounts don’t simply replace informal insurance and savings, but actually have an added benefit. The next challenge is to figure out how to get more people to trust them enough to use them.’


The Effect of Savings Accounts on Interpersonal Financial Relationships: Evidence from a Field Experiment in Rural Kenya’ by Pascaline Dupas, Anthony Keats and Jonathan Robinson is published in the January 2019 edition of The Economic Journal.