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Why do Poor People Co-hold Debt and Liquid Savings?

Carolina Laureti ()

No 17-007, Working Papers CEB from ULB -- Universite Libre de Bruxelles

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.

Keywords: Liquidity; uncertainty; precautionary savings; microfinance; Bangladesh (search for similar items in EconPapers)
JEL-codes: D30 D14 G21 O12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mfd
Date: 2017-02-20
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