Can encouraging youth saving boost development?

A series of six recently-published studies of randomized evaluations of microcredit interventions seem to put to bed the notion that “microfinance lifts the poor out of poverty.” The publications, which appeared January 2015 in the American Economic Journal: Applied Economics, shed light on the impact, or rather lack thereof, of a range of microcredit interventions. Studying a group-lending microcredit program in Hyderabad, India, for example, researchers found that health, education, or women’s empowerment indicators were not significantly affected by the intervention. Furthermore, although pre-existing businesses grew their profits and expenditure on durable goods increased, two years later, control households who had since gained access to microcredit and households that had had access for years were not found to experience significant differences. In rural Amhara and Oromiya, Ethiopia researchers studied the impact of access to microfinance on a range of socio-economic indicators including “agriculture, animal husbandry, nonfarm self-employment, labor supply, schooling, and indicators of women’s empowerment.” Despite substantial take up in borrowing, researchers could not reject the null of no impact. As the studies’ authors summarized, “these methods are deployed across an impressive range of locations—six countries on four continents, urban and rural areas—borrower characteristics, loan characteristics, and lender characteristics….we note a consistent pattern of modestly positive, but not transformative, effects.”

While the studies noted here focused exclusively on micro-credit and not micro-saving, insurance, payments or a combination of strategies, the results and their broader meaning/application may prove instructive for those of us working on and researching the impact of youth savings as an economic or youth development strategy. No doubt, exclusion from the financial system can be a great barrier to a range of life and economic opportunities, particularly for already-vulnerable populations. And seeking the financial inclusion of youth, at least from the perspective of a consortium-led project such as YouthSave, is rooted in a range of imperatives and motivations. The overarching questions might very well be, who are we, why do we seek this, and how can this type of intervention be coupled with additional work for a more integrated approach to poverty reduction, for example. In the case of microfinance, advocates note that the cost of waiting for banks alone to bank the presently 2+ billion unbanked is a costly proposition and that the microfinance sector has ushered unprecedented mechanisms for client protection that the banking sector alone might not have developed. So, while the hubris of thinking that the MFI community can “alter the lives of millions” might well be coming to an end due to mounting evidence, practitioners continue to hold that the potential use and deployment of financial inclusion sector strategies (microfinance, savings, insurance, payments) can prove beneficial if we carefully lay out what we are trying to do and set the appropriate metrics to see whether we have done it.

As YouthSave winds to a close this year and we await the results of our own impact study, which uniquely allows for a rigorous examination of the potential causal relationship between youth savings and development outcomes in a range of areas including health and education, we are positioning ourselves to respond to precisely these questions.

This post originally appeared in New America’s digital magazine, The Weekly Wonk. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Scarlett Aldebot-Green is a senior policy analyst in the Asset Building Program at New America.

Image: Visitors look at the bourse at the Tokyo Stock Exchange in Tokyo March 3, 2014. REUTERS/Issei Kato.