This paper uses a randomized control trial to investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines.
The paper argues that:
- Firms supply deposit services to mobilize savings and to screen for reliable lending clients;
- From an economics perspective, such a service may reduce the transaction costs of making deposits;
- From a psychological perspective, individuals may choose such a service because they are not sure of their future ability to save;
- Deposit collection is a more direct commitment to making cash deposits.
The paper discusses:
- The background of deposit collection services;
- The experimental design and setting;
- The take-up of the service;
- The impact on savings and borrowing at the bank.
The study finds:
- A significant impact on increasing savings and a small, but significant, impact in decreasing borrowing;
- A correlation between the client's distance to the local bank branch and take-up of the service;
- Household bargaining mechanisms that play a relevant role in the popularity of the service. Married women are more likely to take up the service, while married men are no more likely than single men to take it up;
- Moral hazard problems that generate risks for the depositors.
The paper concludes that formalization of deposit collecting would help mobilize deposits and remove information asymmetries in lending markets.