What Use for Flexible Microsavings? Lessons from SafeSave

Poor people often recourse to costly savings strategies in order to better organize their financial life. I have observed the use of flexible savings-and-loan accounts by 16,076 poor slum dwellers living in Dhaka, Bangladesh, from January 2004 to August 2012. I find that 59% of them borrow at high interest rates and, at the same time, hold low-yield liquid savings. This policy brief explains that clients who simultaneously borrow and save use debt strategically to protect their income from being sharable with others. Co-holders of debt and savings are more likely to be poor women working in the formal sector, such as garment factories. A potential explanation stems from the fact that these women enjoy regular and visible wages and are therefore subject to financial solicitations by their families and friends. My findings emphasize that co-holding debt and savings can act as a tool for income protection. In this respect, the flexibility of savings is a key feature.

Laureti, C.  "What Use for Flexible Microsavings? Lessons from SafeSave" Ferdi, Policy brief B75, September 2013