Prompting Microfinance Borrowers to Save: A Field Experiment from Guatemala

• Published in: Economic development and cultural change Vol. 62; no. 1; pp. 21 - 64
• Main Authors: Atkinson, Jesse, de Janvry, Alain, McIntosh, Craig, Sadoulet, Elisabeth
• Format: Journal Article
• Language: English
• Published: Chicago University of Chicago Press 01.10.2013; University of Chicago, acting through its Press
• Subjects: Bank loans; Banking; Debt management; Debt repayment; Debts; Economic models; Equilibrium; Field work; Guatemala; Loan defaults; Loan payments; Loan rates; Loans; Microfinance; Payments; Repayments; Savings; Savings account loans; Savings accounts; Studies; Guatemala
• ISSN: 0013-0079; 1539-2988
• DOI: 10.1086/671713

Can microfinance borrowers use the discipline of regular loan repayments in order to accumulate savings if prompted to do so? In an experiment, we offered commercial savings products to the microfinance borrowers of Guatemala’s largest public-sector bank. We find that giving these borrowers the opportunity to develop a savings plan and be reminded of saving at the time of loan repayment caused no increase in the opening of savings accounts but led to balances among savers that were two and a half times those in the control. A second treatment arm that proposed a default savings contribution of 10% of the loan payment caused the fraction of clients using linked savings accounts to double, as well as elevated deposits among savers, leading to final savings balances that were more than five times the control. The savings treatments also generate faster pay down of debt and weakly better overall repayment performance, suggesting that simultaneous saving and borrowing can be complementary activities. A theoretical model shows that the simultaneous provision of debt and self-commitment savings products can also help a larger fraction of the population to eventually escape a debt-financed equilibrium.