The Debt Puzzle in Dhaka’s Slums: Do Poor People Co-hold for Liquidity Needs?

Carolina Laureti ()

No 15-021, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: We observe the usage of the flexible savings-and-loan accounts offered by SafeSave, a microfinance institution serving poor slum dwellers in Dhaka, Bangladesh. We find that 59% of the clients borrow at high interest rates and simultaneously hold low-yield liquid savings. Our main finding is that this apparent behavioural anomaly cannot be attributed to liquidity needs. In contrast, we show that co-holders are more likely to be workers subject to low-income risk. An alternative explanation is that co-holders take up costly loans they do not need to escape forced solidarity vis-à-vis family members and friends.

Keywords: Liquidity; uncertainty; precautionary savings; microfinance; Bangladesh (search for similar items in EconPapers)
JEL-codes: D14 G21 O12 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2015-05-26
New Economics Papers: this item is included in nep-cfn and nep-mfd
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