Hundreds of millions of people in developing countries earn their living through small-scale businesses (World Bank, 2004; de Soto, 1989), many of which have no employees other than the owner and very low levels of working capital. Enabling small-scale entrepreneurship of this sort has long been identified as a mechanism to alleviate poverty in the developing world. However, much remains unknown about the constraints facing these entrepreneurs. Understanding which constraints are most important, and the role they play in limiting entrepreneurial activity, is crucial in order to understand which types of policies are most likely to enable small business growth.

One important constraint on business growth might be that entrepreneurs find it difficult to save. Anecdotally, many individuals in poor countries report numerous demands on their income. In this project, we test whether savings constraints prevent microentrepreneurs from expanding the size of their businesses. We offered a randomly selected subset of entrepreneurs the option to open a savings account in a local rural bank. The accounts paid no interest on deposits, but included substantial withdrawal fees, in effect offering a negative de facto interest rate. Several months after opening the account, we measured impacts by asking individuals to keep detailed, self-reported daily logbooks which included questions on business investment, expenditures, income, transfers, health, and other related outcomes. We supplement this data with administrative data from the bank.