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The Liquidity Premium: Commercial Banks versus Microfinance Institutions

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  • Carolina Laureti
  • Ariane Szafarz

Abstract

Using data from Bangladesh, this paper finds that the liquidity premium—the difference between the interest paid on illiquid and liquid savings accounts—is higher in commercial banks than in microfinance institutions. One possible interpretation lies in the higher prevalence of time-inconsistency among the poor. The observed difference in liquidity premia could be due to poor time-inconsistent agents willing to forgo interest on illiquid savings accounts in order to discipline their future selves.

Suggested Citation

  • Carolina Laureti & Ariane Szafarz, 2014. "The Liquidity Premium: Commercial Banks versus Microfinance Institutions," Working Papers CEB 14-029, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/178272
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    References listed on IDEAS

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    More about this item

    Keywords

    liquidity premium; time-inconsistency; banks; microfinance; Bangladesh;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G00 - Financial Economics - - General - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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