- 1 - PROMPTING MICROFINANCE BORROWERS TO SAVE : A FIELD EXPERIMENT FROM GUATEMALA June 2012

Can microfinance borrowers use the discipline of regular loan repayments in order to accumulate savings if prompted to do so? In an experiment, we offered commercial savings products to the microfinance borrowers of Guatemala’s largest public-sector bank. We find that giving these borrowers the opportunity to develop a saving plan and be reminded of saving at the time of loan repayment caused no increase in the opening of savings accounts but led to balances among savers that were two and a half times those in the control. A second treatment arm that proposed a default savings contribution of 10% of the loan payment caused the fraction of clients using linked savings accounts to double as well as elevating deposits among savers, leading to final savings balances that were more than five times the control. 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 self-commitment savings products can also help a greater fraction of the population to eventually escape a debt-financed equilibrium. †University of California at Berkeley and ‡University of California at San Diego. We thank the CHN leadership for its close collaboration, Tomas Rosada for help in making the experiment possible, the Associate Editor and two anonymous referees for useful comments, and John Kucharski and Deborah Hirt for excellent research assistance, and BASIS/USAID for funding.