Why Do Poor People Co-Hold Debt and Liquid Savings?. Issue 2 (1st February 2018)

• Record Type: Journal Article
• Authors: Laureti, Carolina
• Is Part Of: Journal of development studies. Volume 54:Issue 2(2018)
• Page Start: 213
• Page End: 234
• Publication Date: 2018-02-01
• Subjects: Economic development -- Periodicals; Economic history -- 1945- -- Periodicals; Developing countries -- Economic conditions -- Periodicals; Développement économique -- Périodiques; Histoire économique -- 1945- -- Périodiques; Pays en voie de développement -- Conditions économiques -- Périodiques; 338.91
• DOI: 10.1080/00220388.2017.1299137
• Languages: English
• ISSNs: 0022-0388

Abstract

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.