Progress with flexible microfinance products: A review of evidence and a proposal

Abstract

We review in both theory and practice how flexible savings and credit can be combined to deal with risk as a complement to insurance. We show that both savings and credit must be used sequentially according to the occurrence of income shocks. Incentives to save are necessary to induce behavior consistent with the desired optimum savings plan, and these incentives can be made compatible with the use of savings for shock response. Several microfinance institutions have taken steps toward offering flexible savings-credit services to respond to risk while preserving borrower and depositor discipline. They however still fall short of a design that would optimize the provision of financial services to deal with risk.
Citation

Abordonado A., Coulibaly A., de Janvry A., Sadoulet E. "Progress with flexible microfinance products: A review of evidence and a proposal" Ferdi Policy brief B83, January 2014