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Storage, Savings, and Farm Reinvestment: An Experiment with ROSCAs in Kenya

We will study the demand for, and impact of, a group-based savings technology which will allow people to better store their maize harvest.

Photo of Jonathan Robinson
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EXPLAIN YOUR IDEA

Our idea is to encourage a cost-effective, scalable, group-based intervention to improve this situation, which we call the group savings and reinvestment account (GSRA). This intervention will harness the existence of ROSCAs (Rotating Savings and Credit Associations, i.e. group savings clubs) in Western Kenya. The main innovation is providing farmers with a simple technology for storing maize: we will provide each ROSCA with insulated air-tight plastic bags, designed specifically for the purpose of storing grain (these are called the Purdue Improved Crop Storage (PICS) bags: https://ag.purdue.edu/ipia/pics/Pages/home.aspx). We will also provide a wooden stand, to keep the maize elevated from the ground (and less susceptible to pests and water damage). The GSRA intervention may encourage usage through a variety of channels. The key factors here are that the bags and stand are a technological improvement over saving in the home; that the group nature of the ROSCA may help provide some “peer pressure”; that setting aside maize in the GSRA (where the maize will be out of the sight of the farmer) may keep the maize “out of sight and out of mind”; and that the GSRA may encourage the activation of a mental account for input usage. The GSRA may also make complementary investments (such as for fertilizer) more profitable, by increasing the effective price that farmers receive for their output.

WHO BENEFITS?

The population for this project will be Rotating Savings and Credit Association (ROSCA) participants in Western Kenya. While ROSCA participants are self-selected, they still a fairly representative in this part of Kenya: in the census of approximately 500 individuals conducted for the pilot, we found that 75% of the population in our study areas participates in at least one ROSCA. Farmers in ROSCAs are likely somewhat better off than other farmers, but are still quite poor on average.

WHERE WILL YOUR IDEA BE IMPLEMENTED?

The project will take place with Rotating Savings and Credit Associations (ROSCAs) in Western Kenya.

ARE YOU IMPLEMENTING IN AN ELIGIBLE COUNTRY?

  • Yes

EXPERTISE IN SECTOR

  • I’ve worked in a sector related to my idea for over a year

EXPERIENCE IN IMPLEMENTATION COUNTRY(IES)

  • Yes, for more than one year.

TELL US MORE ABOUT YOU!

The research is led by Jonathan Robinson, a professor of economics at UCSC, with Eilin Francis (grad student, UCSC) and Shilpa Aggarwal (assistant prof, Indian School of Business). The project will be implemented in Kenya by Innovations for Poverty Action (http://www.poverty-action.org/).

IS THIS IDEA NEW FOR YOU OR YOUR ORGANIZATION?

This project is inspired by a series of research projects conducted by Professor Jon Robinson (UC Santa Cruz, JPAL, CEGA, IPA, NBER, and BREAD) over the past 15 years. His previous work has focused on savings challenges faced by individuals in East Africa, an environment in which a small percentage of people hold formal bank accounts. This research has shown that providing simple savings services (such as a no-frills savings account or even a lockbox) can be effective. A prior project with the same types of savings clubs that we will work with here was focused on savings for health: can providing new savings technologies help households save up for preventative health products? The evidence was a clear yes. The proposed project extends this work into an even more challenging realm – storing maize rather than cash, and for the length of an agricultural season. This project is thus inspired by and related to prior work, but represents a completely new application.

HOW IS YOUR IDEA UNIQUE?

Our idea is to encourage a cost-effective, scalable, group-based intervention, which we call the group savings and reinvestment account (GSRA). This intervention will harness the existence of group savings clubs in Western Kenya. We will provide each ROSCA with insulated air-tight plastic bags, designed specifically for the purpose of storing grain (these are called the Purdue Improved Crop Storage (PICS) bags: https://ag.purdue.edu/ipia/pics/Pages/home.aspx). We will also provide a wooden stand, to keep the maize elevated from the ground (and less susceptible to pests and water damage). The GSRA intervention may encourage usage through a variety of channels including: technological improvement over saving in the home; the group nature of the ROSCA may help provide some “peer pressure”; setting aside maize in the GSRA (where the maize will be out of the home) may keep the maize “out of sight and out of mind”; and the GSRA may encourage the activation of a mental account for input usage. The GSRA may also make complementary investments (such as fertilizer) more profitable, by increasing the effective price that farmers receive for their output.

WHO WILL IMPLEMENT THIS IDEA?

This is a collaboration between Innovations for Poverty Action – Kenya (IPAK), the University of California, Santa Cruz, and the Indian School of Business. IPAK is the Kenyan branch of IPA, which has a tremendous amount of experience in running research projects and currently operates in 18 countries. IPA also has experience in bringing projects to scale, which could be important for this project since the intervention is technologically easily scalable.

HOW HAS YOUR IDEA CHANGED BECAUSE OF BENEFICIARY FEEDBACK?

At the pre-test stage of our study, we enquired why farmers were not storing more maize. Common reasons included non-profitability of storing small quantities of maize as well as temptation to consume or share maize earlier in the season when maize prices are low. Our idea of collective storage is a simple solution to these challenges. With collective, smallholder farmers are able to share the fixed costs of storage (this includes monetary costs like the cost of pesticides, as well as non-monetary such as the cost of drying maize and monitoring stored maize periodically). Moreover, by storing the maize at a place other than their own homes, farmers are less likely to be tempted to consume their maize earlier than planned. Our intended beneficiaries welcomed the idea but expressed concern with storage. Specifically, most ROSCA members did not have an elevated stand of appropriate size that could protect their group members’ stored maize from moisture and pests. Based on this feedback, we identified local carpenters with whom we worked to design wooden stands that could hold 600 kilograms of maize. These stands were provided to our study participants at a highly subsidized rate.

WHAT ARE SOME OF YOUR UNANSWERED QUESTIONS ABOUT THIS IDEA?

- We have some preliminary evidence that farmers store maize when offered the GSRA. Does usage grow over time? - How profitable is the intervention? What are the averted losses from pests or from giving maize away to others? - What do people do with the profits from the GSRA? Do they invest in more agricultural inputs? - Is the intervention sustainable? Does usage continue for several seasons? - Can the intervention be scaled effectively? The intervention is inexpensive (requiring only bags, a stand, and a single meeting). Can we effectively reach a large number of beneficiaries? - What types of people benefit most from the GSRA?

WHY DO YOU THINK THE PROBLEM YOUR IDEA SOLVES FOR HASN'T BEEN SOLVED YET?

We believe the basic issue is technological - right now, farmers are using mostly traditional means to store maize after harvest. The dominant form of saving is literally just a sack of maize stored in or around the house. It's only natural that some of this maize would get destroyed, or that the behavioral and inter-household issues we highlight would be important (i.e. being tempted to consume "too much" of that maize, or to end up giving a lot of it away to friends and neighbors who ask for help).

WHAT WOULD YOU ULTIMATELY LIKE TO ACHIEVE WITH THIS IDEA? WHAT IS YOUR NEXT STEP TO GET THERE?

A strength of this work is that this is a partnership between academic researchers and an implementing organization. We have spent our careers rigorously evaluating interventions. Our first goal is to carefully and correctly document whether this intervention helps people, and if so, how (using an RCT). If the results are promising, our secondary goal would be to scale up this program - the intervention is actually very inexpensive and so could potentially be easily adopted by other groups.

MEMBERS OF MY TEAM HAVE BEEN WORKING TOGETHER FOR:

  • More than a year

MY INTENDED BENEFICIARIES ARE:

  • Within 50 km of where our team does most of its work

MY ORGANIZATION'S OPERATING BUDGET FOR 2015 WAS:

  • We didn't have an operating budget

Markets in developing countries are poorly integrated, especially in rural areas. An important consequence of this is that rural markets see tremendous seasonal price variation - in Western Kenya for example, we observed an approximately 40% increase in prices between the peak and trough of the agricultural season, while Burke (2014) reports increases of 87% in another part of Western Kenya. Farmers are universally aware of this, and many worry about how they will cope with food price increases during the "hungry season" just prior to the harvest. Despite being aware of the impending surge in prices, many farmers find it difficult to save their harvest, and a significant fraction sell maize immediately after harvest at rock-bottom prices. In addition, several also buy later in the year at much higher prices in order to meet consumption needs.


The main difficulty that farmers report facing in storing maize is the obvious one: people simply lack a good place to store maize. Nearly all farmers in a pilot study we conducted in 2015-16 hold at least some maize after harvest (91%) but the technology is extremely inefficient: most people simply keep the maize in the house on a table or on the floor. Farmers estimate that 25% of the maize they store is spoiled due to moisture or pests and rodents, (indeed, 95% of our respondents report such spoilage as one of the challenges to storing maize). Moreover, when maize sits at home in plain sight, it often falls prey to temptation or to claims by others: 26% of our respondents feel that they consume “too much” when they have bags of maize at home. A parallel problem is that friends or relatives often ask for help, and it is hard to say no when the maize is in plain sight in the house. Over 60% of respondents say that they try to find ways to give out as little maize as possible to these sorts of requests, but many find it difficult to say no.

Our idea is to encourage a cost-effective, scalable, group-based intervention to improve this situation, which we call the group savings and reinvestment account (GSRA). This intervention will harness the existence of ROSCAs (Rotating Savings and Credit Associations, i.e. group savings clubs) in Western Kenya. The main innovation is providing farmers with a simple technology for storing maize: we will provide each ROSCA with insulated air-tight plastic bags, designed specifically for the purpose of storing grain (these are called the Purdue Improved Crop Storage (PICS) bags: https://ag.purdue.edu/ipia/pics/Pages/home.aspx). We will also provide a wooden stand, to keep the maize elevated from the ground (and less susceptible to pests and water damage).

The GSRA intervention may encourage usage through a variety of channels. The key factors here are that the bags and stand are a technological improvement over saving in the home; that the group nature of the ROSCA may help provide some “peer pressure”; that setting aside maize in the GSRA (where the maize will be out of the sight of the farmer) may keep the maize “out of sight and out of mind”; and that the GSRA may encourage the activation of a mental account for input usage. The GSRA may also make complementary investments (such as for fertilizer) more profitable, by increasing the effective price that farmers receive for their output. 

This project will be a research project, conducted by Jonathan Robinson (associate professor of economics, UC Santa Cruz and research affiliate at IPA, CEGA, JPAL, NBER, and BREAD), Shilpa Aggarwal (assistant professor of economics, Indian School of Business), and Eilin Francis (graduate student in economics, UC Santa Cruz). Our aim is to evaluate the effect of the GSRA through a randomized controlled trial (RCT). A randomly selected set of ROSCAs will receive the GSRA treatment, while a control group will receive nothing. Since the groups are randomly selected, any post-treatment differences in outcomes will be attributable to the GSRA, rather than to some other factor. The evaluation of this RCT will be conducted in collaboration with Innovations for Poverty Action - Kenya (http://www.poverty-action.org/). 

Research Design & Data Collection

At an initial meeting, each ROSCA (including the control group) will be read a script about the benefits of setting maize aside after the harvest, of using inputs generally, and of savings. The basic script will be augmented for the GSRA ROSCAs to encourage members to collectively set aside some portion of their 2016 long rains harvest using the bags and the stand that we will subsidize, and hold it till the time the selling price of maize is more favorable. Each ROSCA will identify a member who will house the stand to store the group's maize till it is sold, individually or collectively. GSRA ROSCAs will also be provided with a ledger book to enable the treasurer to keep track of all deposits and withdrawals of maize by individual members.

We will collect several pieces of data. First, at the first ROSCA meeting, we will collect a baseline survey for a random sample of the ROSCA members, which will focus on savings, expectations about prices, and constraints to storing maize (as well as basic demographic information). Second, we will visit ROSCAs to collect the administrative records on take-up and usage of the accounts. Third, we will conduct endline surveys. In addition to other questions, this survey will focus on total maize storage (to measure crowd out from the GSRA treatment - i.e. if people do use the GSRA, is this just a substitution from savings at home, or is it a real increase in savings?). The endline will also enable us to measure the extent to which farmers were able to take advantage of intertemporal arbitrage opportunities.

Pilot results

Thus far, we have piloted this intervention with 141 ROSCAs and 3,105 respondents. Preliminary take-up results are very encouraging: 96% of GSRA ROSCAs took up the product, and the average ROSCA is storing 260 kilograms of maize, an amount worth about $57 per ROSCA at post-harvest prices and $108 if held until later. At the individual level, we find that about 40% of farmers set aside some maize in the GSRA; the average amount held by these individuals was 32 kilograms, which is equivalent to roughly 5% of reported harvest output (609 kg). Five percent of farm income is a relatively substantial sum, especially given that much of maize people typically hold is for consumption but the maize held in the GSRA is intended to be illiquid.

In a survey, we find evidence that the GSRA had real effects on savings. First, we find that GSRA ROSCAs held more total maize than control ROSCAs - it appears that most, or all, of the maize held in the GSRA represented new savings (rather than solely a reshuffling of money from home to the GSRA). Second, people reported being happy with the GSRA: 91% report that the GSRA enabled them to save more. There are a mix of reasons for this: people report that they saved more directly since the bags are less prone to pests/spoilage; however, other important reasons included that people gave out less maize when it was kept outside the home, and that people "over-consumed" less.

Open Questions

A grant from IDEO would allow us to explore these issues much more deeply.  While we view this preliminary take-up as encouraging, there are several reasons to suspect this may be a lower-bound on true usage. First, we conducted this pilot over summer 2015, in preparation for the 2015 long rains harvest (which was in August). However, due to tight timing, many of the visits were conducted just before, or in some cases just after the harvest. Effects may be bigger if farmers anticipate this product being available earlier. Second, many ROSCAs (80% of the GSRA group) reported that that their members contributed less than their desired amount. The reasons cited for this were that the harvest was less than expected (possibly suggesting higher take-up in other seasons), and that the intervention started too late. Third, the pilot was limited in that we only provided 4 bags for ROSCAs in this round. Several ROSCAs reported this as a capacity constraint. If funded, we will provide more bags to ROSCAs in future seasons. Fourth, this is a new product and people may want to “try it out” with a smaller sum in the first year.

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Spam
Photo of Chioma Ume
Team

Hi Jonathan!

The Amplify team and our experts have some questions for you:

Is this an idea that you have already begun to implement?

It would be great to learn more about your proposed partnership. What is the core work of IPA Kenya? Have you partnered with them before? How do you envision work and funding be allocated between the two organizations?

Because this tech/process exists and is valuable and needed – have you considered partnerships as a way of building on existing capacity?

I have seen with PICS bags from Purdue University and a company called Zasaka in Zambia. However, the financing model here is interesting and something to work on. I would look into partnering as well, and seeing how this technology has been scaled elsewhere.

Regarding your proposed financial model, how can you incentivize people to stay engaged, involved, and interested?

Looking forward to learning more! 

Spam
Photo of Jonathan Robinson
Team

Hi Chioma,

Thanks for your questions. In terms of the idea, we have piloted it in a preliminary trial (which was actually a fairly good sized pilot). We worked with 141 ROSCAs and 3,105 respondents. Preliminary take-up results looked good: 96% of GSRA ROSCAs took up the product, and the average ROSCA is storing 260 kilograms of maize, an amount worth about $57 per ROSCA at post-harvest prices and $108 if held until later. At the individual level, we find that about 40% of farmers set aside some maize in the GSRA; the average amount held by these individuals was 32 kilograms, which is equivalent to roughly 5% of reported harvest output (609 kg). Five percent of farm income is a relatively substantial sum, especially given that much of maize people typically hold is for consumption but the maize held in the GSRA is intended to be illiquid.

In terms of our relationship with IPA-Kenya, we have worked closely with them for many years. I have been working on research projects in Western Kenya since 2001, and most of that time has been with IPA. IPA is a research organization that works with researchers (usually at universities, as in my case) to implement projects and to evaluate them (I am a research affiliate of IPA though my actual position is an economics professor at UCSC). The real strength of IPA is in designing randomized controlled trials to carefully measure the impacts of programs. This is really the core strength of IPA, and also of the project - I've been doing randomized evaluations of a number of related savings, agriculture, and finance projects for quite a while. The results of these have been published in academic articles, as well as in policy briefs and similar documents from places like the MIT Poverty Action Lab. A main strength of our project is that we have a lot of experience doing high-quality evaluations like this. You can see more of these sorts of evaluations (and of mine specifically as well) at http://www.poverty-action.org/ and https://www.povertyactionlab.org/.

The collaboration is essentially that IPA (in close, essentially daily collaboration with our research team) will manage the field work in Kenya. The UC Santa Cruz / Indian School of Business research time will be voluntary. But we will make trips to Kenya, oversee project development, survey design, etc. 

We are 100% open to partnerships.  I had not heard of the organization you mention but we will look more into it. In general though, we would be extremely happy to collaborate with others.

As for the financial model, and keeping people engaged/interested, we actually are very excited about our pilot results. People seemed to really see a direct benefit in this for themselves - ROSCA members seemed to like the idea of setting aside some cash where they felt that it would be safe (physically, but also safe from temptations to spend or pressure from others). This is evident in the near-universal take-up of the technology. We don't yet know if this excitement lasts or not (part of what we'd love to learn from this grant process!), but it does look like people like the idea!

Spam
Photo of Chioma Ume
Team

Hi Jonathan!

This is quite helpful - and exciting! How much more maize are farmers putting aside when they are using your storage solution?

It's awesome that you have been working with IPAK for so long. If they are also a research a group, who do you envision would implement this idea if you decided to roll it out as a program, rather than a study? 

Thanks! 

Spam
Photo of Shilpa
Team

Dear Chioma,

Sorry for the delay in responding. We find that the average amount held by those farmers who took up the solution was 32 kilograms, which is equivalent to roughly 5% of reported harvest output (609 kg). Five percent of farm income is a relatively substantial sum, especially given that much of maize people typically hold is for consumption but the maize held in the GSRA is intended to be illiquid.

As for implementation, IPA and JPAL's sister organization Evidence Action is involved in scaling up those ideas that are found to be particularly effective during randomize evaluations, the kind we are proposing to do.

Thanks,
Shilpa

Spam
Photo of Chioma Ume
Team

Sounds good Shilpa, thanks for the details! 

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