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Two Sides of the Same Rupee? Comparing Demand for Microcredit and Microsaving in a Framed Field Experiment in Rural Pakistan

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  • Uzma Afzal
  • Giovanna d'Adda
  • Marcel Fafchamps
  • Simon Quinn
  • Farah Said

Abstract

Standard models often predict that people should either demand to save or demand to borrow, but not both. We hypothesise instead that saving and borrowing among microfinance clients are substitutes, satisfying the same underlying demand: for a regular schedule of deposits and a lump-sum withdrawal. We test this using a framed field experiment among women participating in group lending arrangements in rural Pakistan. The experiment — inspired by the rotating structure of a ROSCA — involves randomly offering credit products and savings products to the same subject pool. We find high demand both for credit products and for savings products, with the same individuals often accepting both a credit product and a savings product over the three experiment waves. This behavior can be rationalised by a model in which individuals prefer lump-sum payments (for example, to finance a lumpy investment), and in which individuals struggle to hold savings over time. We complement our experimental estimates with a structural analysis, in which different ‘types’ of participants face different kinds of constraints. Our structural framework rationalises the behaviour of 75% of participants; of these ‘rationalised’ participants, we estimate that two-thirds have high demand for lump-sum payments coupled with savings difficulties. These results imply that the distinction between microlending and microsaving may be largely illusory; participants value a mechanism for regular deposits and lump-sum payments, whether that is structured in the credit or the debt domain.

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  • Uzma Afzal & Giovanna d'Adda & Marcel Fafchamps & Simon Quinn & Farah Said, 2014. "Two Sides of the Same Rupee? Comparing Demand for Microcredit and Microsaving in a Framed Field Experiment in Rural Pakistan," CSAE Working Paper Series 2014-32, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2014-32
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    Cited by:

    1. Lorenzo Casaburi & Rocco Macchiavello, 2019. "Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya," American Economic Review, American Economic Association, vol. 109(2), pages 523-555, February.
    2. Carolina Laureti & Alain De Janvry & Elisabeth Sadoulet, 2017. "Flexible Microfinance Products for Financial Management by the Poor: Evidence from SafeSave," Working Papers CEB 17-036, ULB -- Universite Libre de Bruxelles.
    3. Girum Abebe & A Stefano Caria & Marcel Fafchamps & Paolo Falco & Simon Franklin & Simon Quinn, 2021. "Anonymity or Distance? Job Search and Labour Market Exclusion in a Growing African City [Endogenous Stratification in Randomized Experiments]," Review of Economic Studies, Oxford University Press, vol. 88(3), pages 1279-1310.
    4. Cátia Batista & Marcel Fafchamps & Pedro C. Vicente, 2018. "Keep It Simple: A Field Experiment on Information Sharing in Social Networks," NBER Working Papers 24908, National Bureau of Economic Research, Inc.
    5. Lori Beaman & Dean Karlan & Bram Thuysbaert & Christopher Udry, 2023. "Selection Into Credit Markets: Evidence From Agriculture in Mali," Econometrica, Econometric Society, vol. 91(5), pages 1595-1627, September.
    6. Rachel Cassidy, 2018. "Are the poor so present-biased?," IFS Working Papers W18/24, Institute for Fiscal Studies.
    7. Cátia Batista & Marcel Fafchamps & Pedro C Vicente, 2022. "Keep It Simple: A Field Experiment on Information Sharing among Strangers [Changing Saving and Investment Behavior: The Impact of Financial Literacy Training and Reminders on Micro-Businesses]," The World Bank Economic Review, World Bank Group, vol. 36(4), pages 857-888.
    8. Anett John (née Hofmann), 2014. "When Commitment Fails - Evidence from a Regular Saver Product in the Philippines," STICERD - Economic Organisation and Public Policy Discussion Papers Series 055, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. Rachel Cassidy, 2018. "Are the poor so present-biased?," CSAE Working Paper Series 2018-19, Centre for the Study of African Economies, University of Oxford.
    10. Macchiavello, Rocco & Casaburi, Lorenzo, 2015. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CEPR Discussion Papers 10952, C.E.P.R. Discussion Papers.
    11. Cloos, Janis & Greiff, Matthias & Rusch, Hannes, 2020. "Geographical Concentration and Editorial Favoritism within the Field of Laboratory Experimental Economics (RM/19/029-revised-)," Research Memorandum 014, Maastricht University, Graduate School of Business and Economics (GSBE).
    12. Anett John, 2020. "When Commitment Fails: Evidence from a Field Experiment," Management Science, INFORMS, vol. 66(2), pages 503-529, February.
    13. d'Adda, Giovanna & Mahmud, Mahreen & Said, Farah & Bonan, Jacopo, 2020. "The Role of Flexibility and Planning in Repayment Discipline: Evidence from a Field Experiment on Pay-as-You-Go Off-Grid Electricity," RFF Working Paper Series 20-14, Resources for the Future.
    14. Cassidy, Rachel & Fafchamps, Marcel, 2020. "Banker my neighbour: Matching and financial intermediation in savings groups," Journal of Development Economics, Elsevier, vol. 145(C).
    15. Basu, Karna & Wong, Maisy, 2015. "Evaluating seasonal food storage and credit programs in east Indonesia," Journal of Development Economics, Elsevier, vol. 115(C), pages 200-216.
    16. Abebe, Girum & Caria, Stefano & Fafchamps, Marcel & Falco, Paolo & Franklin, Simon & Quinn, Simon, 2017. "Anonymity of distance? Job search and labour market exclusion in a growing African city," LSE Research Online Documents on Economics 86573, London School of Economics and Political Science, LSE Library.

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