Why Do Poor People Co-Hold Debt and Liquid Savings?

Carolina Laureti

Journal of Development Studies, 2018, vol. 54, issue 2, 213-234

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.

Date: 2018
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DOI: 10.1080/00220388.2017.1299137

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