Borrowing to Save
Poor families often borrow even when they have savings sufficient to cover the loan. The practice is costly relative to drawing down ones own savings, and it seems particularly puzzling in poor communities. The families themselves explain that it is easier to repay a moneylender than to repay oneself, an explanation in line with recent findings in behavioral economics. In this context, high interest rates on loans can help instill discipline. While workable, the mechanism is hardly optimal; options could be improved through access to a contractual saving device that helps savers rebuild assets after a major withdrawal.
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Volume (Year): 1 (2010)
Issue (Month): 2 (December)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ghatak, Maitreesh & Guinnane, Timothy W., 1999.
"The economics of lending with joint liability: theory and practice,"
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- Maitreesh Ghatak & Timothy W. Guinnane, 1998. "The Economics of Lending with Joint Liability: Theory and Practice," Working Papers 791, Economic Growth Center, Yale University.
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- Beatriz Armendáriz & Jonathan Morduch, 2010.
"The Economics of Microfinance, Second Edition,"
MIT Press Books,
The MIT Press,
edition 2, volume 1, number 0262014106, September.
- Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 635-672.
- Nava Ashaf & Dean Karlan & Wesley Yin, 2006. "Tying odysseus to the mast: Evidence from a commitment savings product in the philippines," Natural Field Experiments 00206, The Field Experiments Website.
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