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

61 Pages Posted: 3 Apr 2017

See all articles by Uzma Afzal

Uzma Afzal

University of Nottingham; Lahore School of Economics - Center for Research in Economics and Business

Giovanna D'Adda

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM)

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Simon Quinn

University of Oxford

Farah Said

Centre for Research in Economics and Business, Lahore School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 4, 2015

Abstract

Following recent literature, we hypothesise that saving and borrowing among microfinance clients are substitutes, satisfying the same underlying demand for a regular deposit schedule and a lumpsum withdrawal. We test this using a framed field experiment among women participating in group lending 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 behaviour can be rationalised by a model in which individuals prefer lump-sum payments (for example, to finance a lumpy expenditure), 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 is illusory; participants value a mechanism for regular deposits and lump-sum payments, whether that is structured as a credit or debt contract.

Keywords: Microfinance, Rosca, Quasi-Hyperbolic Preferences, Commitment Saving, Pakistan

JEL Classification: O16, D91, G02

Suggested Citation

Afzal, Uzma and D'Adda, Giovanna and Fafchamps, Marcel and Quinn, Simon R. and Said, Farah, Two Sides of the Same Rupee? Comparing Demand for Microcredit and Microsaving in a Framed Field Experiment in Rural Pakistan (April 4, 2015). Available at SSRN: https://ssrn.com/abstract=2943745 or http://dx.doi.org/10.2139/ssrn.2943745

Uzma Afzal (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Lahore School of Economics - Center for Research in Economics and Business ( email )

Intersection Main Boulevard
Phase VI DHA and Burki Road
Burki, Lahore 54000
Pakistan

Giovanna D'Adda

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Simon R. Quinn

University of Oxford ( email )

Farah Said

Centre for Research in Economics and Business, Lahore School of Economics ( email )

Intersection DHA VI and Burki
Burki
Lahore, Punjab 53200
Pakistan

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