| 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. |