The Liquidity Premium: Commercial Banks versus Microfinance Institutions

Carolina Laureti () and Ariane Szafarz

No 14-029, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Using data from Bangladesh, this paper finds that the liquidity premium—the difference between the interest paid on illiquid and liquid savings accounts—is higher in commercial banks than in microfinance institutions. One possible interpretation lies in the higher prevalence of time-inconsistency among the poor. The observed difference in liquidity premia could be due to poor time-inconsistent agents willing to forgo interest on illiquid savings accounts in order to discipline their future selves.

Keywords: liquidity premium; time-inconsistency; banks; microfinance; Bangladesh (search for similar items in EconPapers)
JEL-codes: D14 D53 G00 G21 O16 (search for similar items in EconPapers)
Pages: 11 p.
Date: 2014-11-26
New Economics Papers: this item is included in nep-ban and nep-mfd
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