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Abstract:
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The objective of this case study is to present the design and implementation of a commitment savings product for groups of tobacco farmers in Malawi. The product was successful in :
- encouraging savings,
- increasing input purchases and yields for the next year‘s harvest,
- increasing consumption after the harvest.
Opportunity International Bank Malawi (OIBM) enlisted the support of researchers at the University of Michigan and the World Bank to help develop and implement a commitment savings product for farmers in rural Malawi.
The researchers thought the product needed to be designed with farmers’ income cycle in mind. Since farmers’ incomes are seasonal and fluctuating, it was not helpful for the bank to impose a strict date for withdrawing funds. They also believed that farmers were under social pressure to share any excess wealth with the rest of their group.
This document states that this social norm might then compel someone to spend their additional income in anticipation of having to share it. The process of tailoring the product to rural farmers involved changing the existing commitment accounts at OIBM. New features were added to improve take-up, ensure commitment compliance and conform to the needs of rural farmers in Malawi. This new product was developed to bring financial access to farmers and help overcome behavioral barriers to savings.
The commitment savings product contributes to responsible financial inclusion by providing a convenient and affordable savings account to rural farmers. The product targets those that have previously lacked access to formal saving services. “Farmers” groups received a tutorial providing information on savings and how to open the account. As with traditional savings accounts, the commitment savings product is free and provides customers with a small rate of return.
The commitment mechanism allows farmers access to funds when they most need them while also enabling them to set aside excess income for future use. They therefore no longer resort to “living without” or taking loans at high interest rates. |