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Why Do Poor People Co-Hold Debt and Liquid Savings?

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  • Carolina Laureti

Abstract

I examine the use of flexible savings-and-loan accounts offered by SafeSave, a microfinance institution serving poor slum dwellers in Dhaka, Bangladesh. I find that 59 per cent of the clients co-hold, meaning that they borrow at high interest rates and simultaneously hold low-yield liquid savings. Co-holders could immediately pay down, on average, 32 per cent of their debt using liquid savings and thus avoid significant interest payments. The results show that co-holders are more likely to be regular workers subject to little income uncertainty, suggesting that co-holding is not a consequence of liquidity needs. The paper discusses alternative explanations.

Suggested Citation

  • Carolina Laureti, 2018. "Why Do Poor People Co-Hold Debt and Liquid Savings?," Journal of Development Studies, Taylor & Francis Journals, vol. 54(2), pages 213-234, February.
    • Handle: RePEc:taf:jdevst:v:54:y:2018:i:2:p:213-234
    DOI: 10.1080/00220388.2017.1299137
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    Cited by:

    1. Wooyoung Lim & Sujata Visaria, 2020. "The Borrowing Puzzle: Why Do Filipino Domestic Workers in Hong Kong, China Borrow Rather than Dissave?," Asian Development Review, MIT Press, vol. 37(2), pages 77-99, September.
    2. Laureti, Carolina & Szafarz, Ariane, 2023. "Banking regulation and costless commitment contracts for time-inconsistent agents," Economic Modelling, Elsevier, vol. 129(C).
    3. Anastasia Cozarenco & Valentina Hartarska & Ariane Szafarz, 2019. "Too Many Cooks Spoil the Broth: The Conflicting Impacts of Subsidies and Deposits on the Cost-Efficiency of Microfinance Institutions," Working Papers CEB 19-001, ULB -- Universite Libre de Bruxelles.
    4. Angela Hilmi, 2019. "The Alfredo Namitete Agroecology Credit System: A New Business Model That Supports Small-Scale Lending," Sustainability, MDPI, vol. 11(15), pages 1-20, July.

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