This paper starts from a puzzle. On the one hand, the literature documents that a large proportion of poor people are ready to forgo interest on rigid – or commitment – savings accounts to discipline their future selves. On the other, our stylized facts from Bangladesh show that microfinance...

The success of microfinance rests upon product simplicity, standardization, and the capacity to stimulate client discipline. However, poor people desperately need flexible financial products to improve their day-to-day money management and cope with shocks. This paper discusses how microfinance...

Using data from Bangladesh, this paper 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...

Using data from Bangladesh, this paper 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-consistent savers require compensation for holding savings accounts that are illiquid rather than liquid. In equilibrium, banks subject to reserve requirements for liquidity management are keen to offer that compensation. Yet the presence of time-inconsistent agents, who value illiquidity...