Research in progress

How Poor Bangladeshi Households Behave Regarding Access to Commitment Savings Products

(with M. Volral)

Access to commitment savings products is known to increase poor households’ savings. In this paper we analyze the process through which households change their savings behavior, by exploiting a unique dataset released by SafeSave, a Bangladeshi microfinance institution that launched the Long Term Savings commitment product in 2009. First, we find that households increase their savings a few months before they open the commitment product. Then, distinguishing early takers (who take up the commitment account immediately) and late takers (who wait at least three months), we show that the increase of savings is driven by the later group. We interpret this as evidence that households prepare themselves before taking-up the commitment account. The existence of such preparation stage is in line with the “transtheoretical model of behavior change” (Prochaska and DiClemente, 1982; 1983) found in the psychological literature. Our paper suggests that poor households are more forward-looking than previously thought.

The full paper is here .

Flexible Microfinance Products for Financial Management by the Poor: Evidence from SafeSave

(with A. de Janvri and E. Sadoulet)

Well-functioning financial services are key for consumption smoothing and to take advantage of investment opportunities. Even though poor households badly need financial services for their day-to-day money management, a commonly held view is that they are ‘too poor’ to save and to repay loans with flexible terms. This paper explores whether this view holds true for two specific flexible financial products, namely passbook savings accounts and credit lines. Analyzing the daily transactions and balances in more than 10,000 SafeSave accounts—a microfinance institution based in Dhaka, Bangladesh—over nine years (2004-2012) shows that clients make extensive use of their flexible savings-and-loan accounts to accommodate changing availability of and needs for liquidity in the face of three kinds of events: paydays, Islamic festivals (Ramadan, Eid al-Fitr, and Eid al-Adha), and political protests (hartals). Cash-in (savings deposit and loan repayment) flexibility is used to cope with both positive (paydays) and negative shocks (Islamic festivals and political protests); cash-out (withdrawal and loan taken) flexibility is used if the negative shock is anticipated well in advance (as in the case of Islamic festivals). We show that, while interest rates on loans are higher than in competing MFIs, repayment rates are comparably high. We also show that SafeSave is covering its operational costs, indicating that this type of flexible financial services can be offered to the poor in a sustainable fashion. Overall, analysis of the SafeSave experience shows that flexible financial products are much in demand by the poor and that they can be profitable for the microfinance institution that offers them. 

The full paper is here .