Creating Incentives to Save Among Microfinance Borrowers: A Behavioral Experiment from Guatemela

This paper analyzes the savings response of microfinance borrowers from the largest public bank in Guatemala who were given the opportunity to contribute to a savings account at the time they made their regular monthly loan payment.

The Bank randomly offered clients one of three options: a Basic Savings account with no commitment to save, an open commitment savings account (Open Treatment) and a default commitment savings account (Default Treatment). Findings include:

• Open Treatment generated no increase in the rate of opening accounts relative to the Basic Savings;
• Open Treatment increased the likelihood that deposits are made and increased overall savings balances;
• Default Treatment led to a near doubling of the rate of account opening, but conditional on opening an account, it generated overall savings balances identical to the Open Treatment;
• Faster rate of savings accumulation corresponded to a faster rate of capital repayment on the loan and a lower incidence of repayment problems, in both treatments.

The study demonstrates that savings and loan repayment are complementary and that offering such products to borrowers can help individuals escape debt financing of investments.