nep-mfd New Economics Papers
on Microfinance
Issue of 2017‒02‒26
one paper chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Why do Poor People Co-hold Debt and Liquid Savings? By Carolina Laureti

  1. By: 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% 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.
    Keywords: Liquidity; uncertainty; precautionary savings; microfinance; Bangladesh
    JEL: D30 D14 G21 O12
    Date: 2017–02–20

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