Two Sides of the Same Rupee? Comparing Demand for Microcredit and Microsaving in a Framed Field Experiment in Rural Pakistan

Standard models often predict that people should either demand to save or demand to borrow, but not both. We hypothesise instead that saving and borrowing among microfinance clients are substitutes, satisfying the same underlying demand: for a regular schedule of deposits and a lump-sum withdrawal. We test this using a framed field experiment among women participating in group lending arrangements in rural Pakistan. The experiment — inspired by the rotating structure of a ROSCA — involves randomly offering credit products and savings products to the same subject pool. We find high demand both for credit products and for savings products, with the same individuals often accepting both a credit product and a savings product over the three experiment waves. This behavior can be rationalised by a model in which individuals prefer lump-sum payments (for example, to finance a lumpy investment), and in which individuals struggle to hold savings over time. We complement our experimental estimates with a structural analysis, in which different ‘types’ of participants face different kinds of constraints. Our structural framework rationalises the behaviour of 75% of participants; of these ‘rationalised’ participants, we estimate that two-thirds have high demand for lump-sum payments coupled with savings difficulties. These results imply that the distinction between microlending and microsaving may be largely illusory; participants value a mechanism for regular deposits and lump-sum payments, whether that is structured in the credit or the debt domain.