Working Papers

Abstract

We report on an experiment in which new commercial savings products, informed by the
behavioral finance literature, were offered to the microfinance borrowers of Guatemala’s largest
public-sector bank. We find that giving these borrowers the opportunity to plan, and be reminded
of, saving at the time of loan repayment resulted in a doubling of savings deposits relative to the
control, and that proposing a default contribution of 10% of the loan payment caused deposits to
double again. The savings treatments also generate faster pay-down of debt and weakly better
overall repayment performance, suggesting that simultaneous savings and borrowing can be
complementary activities. A theoretical model shows that the simultaneous provision of debt and
commitment savings products helps a greater fraction of the population to eventually escape a
debt-financed equilibrium. Mainstreaming the most successful product tested here would allow the
bank to mobilize savings sufficient to leverage 50% of its short-term loan portfolio.

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