Development Programs and General Equilibrium Effects: Experimental Evidence on Formal Savings and Informal Insurance In Villages

I use a randomized field experiment in Malawi to identify the effects of formal savings adoption in villages on inter-household transfers, and to isolate spillover effects on non-savers. My findings highlight that general equilibrium effects of development projects, though commonly overlooked, can be very important. They also explore the effectiveness of a novel method to spur formal services adoption and accelerate financial deepening. A panel analysis of 2,006 households reveals a randomly assigned encouragement raises savings account adoption among all but the bottom strata of households. This boost in formal savings-use increases interhousehold transfers during peak periods of hunger. Rises in transfer receipts are highest among the poorest, a de facto financial services-ineligible group, among whom increased cash help is linked to large improvements in food consumption. The strong impacts I find on non serviceusers means formal finance has immediate-term effects which are much broader than indicated by analyses that restrict attention to impacts on service-users. The findings also highlight the sensitivity of safety nets and welfare outcomes among the village “underclass” to the spread of financial markets. Little is known about how microfinance affects pre-existing informal insurance arrangements, and those who rely on such practices. My findings help address this gap.