Improving Low Income Workers’ Financial Wellbeing

Savings form an important part of  financial wellbeing and resilience, in developing countries. However, low-income groups face significant barriers to saving formally, such as distance from banks, account opening and maintenance costs, and documentation requirements. Research in regions like rural Uganda, Malawi, and Nepal has shown that simply removing these barriers, by itself may not ensure sustained account usage.

The challenges mentioned above can be overcome by employer-enabled, workplace savings programs, as has already been seen in developed countries. Employers can be unique financial enablers by offering access to a formal payroll account, assisting with documentation, and arranging for automatic deductions from salaries to facilitate regular savings. Our study in India aims to provide unique insights from the manufacturing industry context by examining the impact of employer-enabled commitment savings on worker wellbeing and performance.

Can employer-enabled saving plans improve formal savings among low-income workers in the manufacturing sector? Can this intervention simultaneously improve workers’ financial wellbeing and firm performance, as measured by worker attendance and retention?

The study employs a randomized controlled trial (RCT) to evaluate the impact of a commitment-based savings intervention for low-income workers. The intervention features four unique components:

1. Recurring Deposit (RD) : This forms the primary component of the savings plan offered to the workers. An RD is a term deposit for committed micro-savings, requiring one to deposit a fixed amount of money every month for a decided tenure (here, 6 months). 
2. Savings Bank Account (SB) : The RD will be linked to a zero-balance savings account keeping in mind workers’ low incomes and liquidity preferences.
3. Automatic Payroll Deductions : For some workers, the monthly instalments in the RD, will be facilitated by their employer through automatic payroll deductions. The deduction amount will be equivalent to their regular attendance bonus (Rs.100 to 200). The remainder of the worker’s salary will be deposited into their current payroll account, as usual.
4. Performance Rewards : For some workers, their savings in the RD will be linked to and be rewarded based on their performance, as measured in terms of attendance and retention. They will serve as incentives for workers to save and stay consistent in their attendance.

Together all these options are designed to enable low income workers to improve their total and formal savings. The intervention randomly assigns workers to four groups:

• Group A workers are offered the opportunity to open the zero balance SB and the RD accounts, but not the facility of payroll deductions. Their entire salary will be deposited in their payroll accounts.

• Group B  are  offered the opportunity to open the zero balance SB and the RD accounts . Further for these workers, the employer will directly deposit an amount equivalent to their attendance bonus (ranges between INR 100 to INR 200)  in the RD-linked savings account, while their regular salary continues to be deposited in their usual payroll account.
  
• Group C  has the opportunity to open the SB and RD accounts, along with the payroll deduction facility. Additionally, if the workers in the group stay with the organization for 6 months and keep saving in the RD, the employer will provide an additional bonus of INR 300.
• Group D workers are offered to open the SB and RD accounts, along with the payroll deduction facility and the reward of  INR 300 at the end of the 6 months, if they continue working with the employer and saving in RD. In addition, they will also get another reward equivalent to 50% of their earned attendance bonus over the 6 month period.
  

The study evaluates the interventions’ effectiveness in promoting formal savings, improving workers’ financial wellbeing, and enhancing firm performance.

• Usage of the offered savings plan, as measured by
  –  number of deposits in a given time-period
  –   sustained saving in the instrument (without premature closure)
• Amount of savings accrued by workers
• Firm performance, as measured by
  –   Absenteeism among workers in the factory
  –   Attrition rate among workers