Savings Defaults and Payment Delays for Cash Transfers: Field Experimental Evidence from Malawi 2013-2014

Crucially, the umbrella project offered subsidized bank accounts with the commercial bank NBS to households in villages located within six kilometers of the bank's Mulanje branch location. The branch is located in the local trading center, an approximately one-kilometer stretch along the main road with shops, government offices, and branches of other local banks. The field teams completed village listings in ten villages and randomly selected 872 households for surveys and account offers in July 2012. Of those households, approximately five percent already had accounts with NBS and another 15 percent had accounts with one or more other banks. These numbers appear typical for Malawi. According to the nationally representative Global Findex Database, 18.8 percent of individuals aged 15 and older in Malawi had accounts with financial institutions in 2014; in rural areas, 14.3 percent of adults owned such accounts.

Ultimately, 742 individuals in our sample opened new accounts. The final sample included 704 new and existing NBS account holders who participated in the savings promotion studies. From that sample of account holders, a random subset of 600 were selected for the windfall cash experiment.

The windfall experiment varied whether respondents received a payment of MK 25,000 (USD 59.52 or $PPP 176.50) in cash or directly deposited into their bank accounts. The savings default treatment was cross-randomized with the timing of payment: immediately, after one day, or after eight days. In order to equalize the transactions costs of accessing the payment, all participants had to return to the bank in order to receive their payment whether it was made in cash or directly deposited into a bank account. Twenty percent of respondents (118 individuals) received a small, immediate cash payment of MK 1,000 instead of the large transfer of MK 25,000 and serve as a control group although they are excluded from most of the analysis. Participants in the control group received a small payment to offset their travel and time costs and to preserve good will for participation in future survey waves. The final design thus includes six large transfer treatment arms that vary in savings default and timing of payment, and the control group.

The randomization into the different treatment (and control) arms took place at the bank itself to avoid differential take-up. First, each head of household was visited by a field team for a midline survey, after which they were told they were eligible for a cash prize of up to MK 25,000 if they visited the bank branch exactly two days after the survey (which becomes \day zero" in the intervention timeline). In advance of the midline visit, households were randomly assigned (by computer, and stratified by village) to either a morning or afternoon visit to the bank branch. The shift implicitly determined whether the household would receive the transfer in cash or directly deposited into the bank account. The correspondence between shift time and savings default alternated daily, so respondents who interacted with each other at the bank all received the transfer in the same way. The savings default determination was not known to respondents until they visited the bank.

Assignment to disbursement timing took place at the bank. Respondents drew (without replacement) a token from a bag assigned to their village and bank shift. The tokens corresponded to one of four groups: a control condition that received a small, immediate cash transfer or one of three timing conditions for the large transfers. The three timing conditions for the large payments were immediate, in one day, or in eight days. The savings default was cross-randomized and determined by pre-assignment to morning or afternoon shift as explained above, but was revealed to respondents following the token draw. From the respondents' perspective, the token draw determined whether the transfer was large or small; whether it was defaulted into savings; and when it was received.

All analysis is conducted relative to the day a household was assigned to visit the bank. Follow up surveys were carefully timed to capture spending at key intervals. The recall period for each survey was one week. For those who received transfers immediately or one day after the initial bank visit, pre-transfer expenditures come from the survey conducted at the initial visit, on day t = -2. Spending in the week after the transfer (including day of the transfer) is measured in Survey 1, conducted on day t = 7 for the immediate-transfer group and day t = 8 for the one day delay group. For the eight day delay group, Survey 1 measures spending in the week after the announcement, but before the transfer was made. As we will discuss, households may spend in anticipation of receiving a large transfer. Survey 2, conducted on day t = 15, measures post-transfer expenditures for this group. The only exception to a one-week recall period is this survey, which includes an eight day recall period to capture spending on the day of the transfer.

Transfers were implemented in March and April 2014. They were timed to coincide with the end of the lean season, just before many households harvest and sell crops.