Published articles

Banking regulation and costless commitment contracts for time-inconsistent agents

(Economic Modelling, 2023. Written with A. Szafarz)

Behavioral economics modeling assumes that the contractible commitments valued by sophisticated time-inconsistent agents come at a cost. This paper challenges this assumption by arguing that it disregards the benefits that providers derive from supplying commitment-based products. In our equilibrium model, the commitment embedded in an illiquid savings product is valuable to both market sides. Although sophisticated time-inconsistent agents value the commitment, they do not have to pay for contracting it. The necessary and sufficient conditions for having a costless commitment contract in the savings market combine strong liquidity constraints imposed on banks and the occurrence of harmful shocks. Our results have regulatory implications for social finance.

The full paper is here .

Why do poor people co-hold debt and liquid savings?

(Journal of Development Studies, 2017)

I examine the use of flexible savings-and-loan accounts offered by SafeSave, a microfinance

institution serving poor slum dwellers in Dhaka, Bangladesh. I find that 59 per cent of the clients co-hold, meaning that they borrow at high interest rates and simultaneously hold low-yield liquid savings. Co-holders could immediately pay down, on average, 32 per cent of their debt using liquid savings and thus avoid significant interest payments. The results show that co-holders are more likely to be regular workers subject to little income uncertainty, suggesting that co-holding is not a consequence of liquidity needs. The paper discusses alternative explanations.

The full paper is here .

The price of deposit liquidity: banks versus microfinance institutions

(Applied Economics Letters, 2016. Written with A. Szafarz)

Using data from Bangladesh, this article 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.

The full paper is here .

Discipline and flexibility: a behavioural perspective on microfinance product design

(Oxford Development Studies, 2016. Written with M. Labie and A. Szafarz)

The success of both microcredit and micro-savings products rests upon simplicity and standardization in order to stimulate client discipline. However, these products lack flexibility. This paper attempts to make sense of behavioural product design in microfinance. We focus on the potential tradeoffs between discipline and flexibility. While discipline devices encourage clients to make payments on time, microfinance product flexibility improves clients’ day-to-day money management and helps them cope with shocks. Our contribution is twofold. Firstly, we highlight the evidence based advantages and disadvantages of flexible products in microfinance. Secondly, we present best-practice examples of flexible products offered by microfinance institutions worldwide.

The full paper is here .

Innovative flexible products in Microfinance

(Savings and Development, 2011. Written with M. Hamp)

The paper describes innovative microfinance products that combine flexibility features with financial discipline. Those are microsavings, microcredit and microinsurance products and they

come from microfinance institutions worldwide. This review shows that service providers are introducing various types of flexibility into financial contracts and that flexibility can be combined

with a variety of disciplining mechanisms, such as direct screening and monitoring of

clients, financial collateral, reputational incentives, and also psychological pressure. We notice,

however, that product flexibility may raise the operational costs for the institutions and

have a limited outreach.

The full paper is here .