Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence from Tanzanian MSEs

What is the relationship between entrepreneurial saving practices and reinvestment?  We develop a model of entrepreneurial finance and show that entrepreneurial reinvestment decisions depend on the efficiency of saving practices.  Utilizing a novel micro & small enterprise survey from Tanzania we test the empirical implications of this theory.  We find (1) saving for business purposes and earnings reinvestment are positively related; (2) the practice of saving in a deposit account of a formal financial institution is more likely to facilitate a reinvestment compared to the practice of keeping savings within the household.  We also show that the negative impact of saving within-the-household on investment is more pronounced for family members with inherently low intra-household bargaining power - such as females and non-head household members.  Our work contributes to the recent debate on the implications of saving instruments in developing countries, and suggests informal saving practices as potential barriers to microenterprise performance.