Cash Transfers and the Value of Illiquidity

Policy Context

Households in low- and middle-income countries hold remarkably low levels of cash savings, even though limited savings constrain their ability to invest in agriculture and other income-generating activities. In Burundi, where 74 percent of the population lives below the global poverty line, 87 percent of surveyed farmers say it is hard to keep money in cash for a large future expense, while only 13 percent say the same about crops. When asked how they would save for a lumpy expense, 80 percent of respondents say they would convert cash into an illiquid form such as crops or livestock, and none select saving in cash. These patterns raise a question with direct relevance for social protection policy: does illiquidity itself, apart from any difference in returns, help households preserve savings and translate them into productive investment?

Study Design

The research team will test whether households prefer illiquid savings and whether illiquidity raises aggregate savings and farm investment in Burundi. The project’s first two components document the prevalence of illiquid saving strategies among 300 farmers and use incentivized valuation exercises to measure how much farmers value holding savings in beans rather than cash. The third component is a randomized evaluation enrolling 4,000 households, who receive one of three transfers, a fixed quantity of beans, a cash transfer of equivalent value, or beans made readily convertible to cash through visiting traders, or receive no transfer, serving as a comparison group. Follow-up surveys measure savings, expenditures, investment, and yields at four points over six months following the transfers.

Results and Policy Lessons

Results forthcoming.