Original document was submitted as an honors thesis requirement. Copyright is held by the author.

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Will bundling savings accounts with loans increase the effectiveness of microfinance as a tool for alleviating poverty? Microfinance is the practice of offering small loans to poor people in developing countries. The development of this practice into a poverty dimishining, self-sustaining business won Muhammad Yunus a Nobel Prize in 2006. Today, there are thousands of microfinance institutions (MFIs) serving millions of people in developing countries. However, there is recent evidence that these loans do not help reduce poverty, and may do as much ahrm as good.

In truth providing credit to the poor may not be enough to eliminate poverty. However, the micrfinance pioneered by Yunus and utilized by thousands of other MFIs is not limited to simply providing affordable credit. Other services such as business training, insurance, savings accounts, etc. are bundled with the loans.These services are offered because microfinance is not just about making profits, but helping pull people out of poverty. This paper looks at one of the non-credit services offered with most microloans: savings accounts. Through a study done with microenterprise owners in Kenya, this paper looks at the benefits of savings accounts to women who are ideal candidates for microfinance insitutions but who are not borrowers. By looking at women who are not yet borrowers, we can see if savings accounts provide enought gain to be bundled with microloans. The goal of the paper is to examine if providing participants with a safe place to keep their money will help them increase their overall financial resources and thus be able to invest more in their business.

The results of the study present positive and significant increases in savings account balances for the treatment group as well as improvements in the labor supply, business investment, and consumption. These results indicate that there is a demand amongst the poor for formal savings accounts and that these accounts can improve business outcomes for microenterprise owners.