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Financial knowledge does not spread automatically

Datum:15 november 2016
Auteur:prof. dr. Robert Lensink
Robert Lensink
Robert Lensink

The last decade has seen an enormous increase in microfinance programs in developing countries.  The promise that microcredit would eradicate poverty rests on the assumption that poor people, especially women, were “trapped” in poverty because they lacked access to capital. Relaxing this binding constraint, via a small loan, would set in motion a process of development. Unfortunately there is very little rigorous evidence to support this view. To the contrary: recent studies show that  microcredit fails to raise households out of poverty.

Originally, microfinance regarded business training as unimportant, under the assumption that poor people already had the necessary entrepreneurial skills and knowledge. But the situation in developing countries is not quite so simple. Most owners of small shops and businesses do not implement standard business practices: Formal records rarely are kept; household and business finances often are mixed; and no proper marketing takes place. Therefore, in addition to microcredit, business and financial literacy trainings seem needed to lift the poor out of poverty.  

We have conducted a field experiment in Rwanda to evaluate the impact of a financial literacy training (See: Aussi Sayinzoga, Erwin Bulte and Robert Lensink, Financial Literacy and Financial Behaviour: Experimental Evidence From Rural Rwanda, Economic Journal). We partnered with an international nongovernmental organization (NGO)  providing a training programme for five consecutive days. We  collected data from five agricultural savings and credit cooperatives, located in the southern province of Rwanda.

We used a so-called randomized controlled trials (RCTs) design, where the timing of the  training is randomly allocated via a lottery, implying that the control group received the treatment later. The most innovative feature of the study is that we did not train a randomly selected bank member, but instead asked the village bank to send a volunteer or representative.  This representative was explicitly asked by the NGO to share the obtained knowledge with his fellow members. The set up enabled us to examine the hypothesis of the implementing NGO that village bank representatives would share what they had learned with, their peers, leading to a spread of  financial literacy across the country. The presence of spill-over effects, which is an implicit assumption of many implementing organisations, would enormously  improve the cost-effectiveness of training interventions

The results of our study, however, are sobering. On the positive side: we show that the financial literacy training caused significant changes in behaviour:  the savings rate for farmers who received the training is 6% higher  compared with farmers in the control group; trained farmers exhibit a 16% greater probability to start up a new income-generating activity and the share of the population that has taken a loan increases by 24% due to the traing. However, unfortunately, these effects are confined to the trained individuals. When we compare the peers from trained individuals (i.e. fellow farmers from the same local bank branch or lending group) to randomly selected farmers from the comparison group, we do not observe any evidence of spillover effects for any outcome variable after 15 months. Thus our study clearly shows that  the benefits of the training stay limited to those farmers receiving the training, and contradicts the assumption of many organisations responsible for training interventions that information about new behavior and innovations spreads almost costless from one individual to the next.


Aussi Sayinzoga,  Erwin H. Bulte, and Robert Lensink, 2016, Financial Literacy and Financial Behaviour: Experimental Evidence from Rural Rwanda, Economic Journal, Vol. 126, No. 594, pp.  1571–1599.

Over de auteur

prof. dr. Robert Lensink
prof. dr. Robert Lensink
prof. dr. Robert Lensink, scientific director CIBIF
Expertise: Finance and Development; Impact Analyses; Experimental Economics; Development Economics

Link: /staff/b.w.lensink/


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