Biometric and Financial Innovations in Rural Malawi, 2009-2010

Agriculture in Sub-Saharan Africa employs two-thirds of the labor force and generates about one-third of GDP growth. According to the 2008 World Development Report, GDP growth originating in agriculture is about four times more effective in reducing poverty than GDP growth originating outside agriculture. For this reason, policies that foster agricultural productivity can have a substantial impact on food security and poverty reduction.

In recent decades, there has been substantial interest among policy-makers, donors, and international development institutions in microfinance (financial services for the poor) as an anti-poverty intervention. Provision of microcredit has perhaps attracted the most attention. In 2009, the Microcredit Summit estimated that there were more than 3,500 microfinance institutions around the world with 150 million clients (Daley-Harris 2009). While these outreach numbers are impressive, microcredit today is largely devoted to non-agricultural activities (Morduch 1999; Armendariz de Aghion and Morduch 2005) due to the substantial challenges inherent in agricultural lending. Given the limited supply of credit for agriculture, many donors and academics (for example, Deaton 1990; Robinson 2001 and more recently the Bill and Melinda Gates Foundation) have emphasized the potential for increasing access to formal savings.

The motivating question of this study is whether facilitating formal savings can promote agricultural development. To this end, the authors collaborated with a bank and private sector firms to implement a randomized controlled trial of a program facilitating formal savings for Malawian cash crop (tobacco) farmers. To authors knowledge, this is the first randomized study of the agricultural impacts of an intervention facilitating savings in a formal banking institution.