Abhijit Banerjee & Esther Duflo

Designing financial products that share the commitment features of the microfinance contracts, without the interest that comes with them, could clearly be of great help to many people. A group of researchers teamed up with a bank that works with poor people in the Philippines to design such a product, a new kind of account that would be tied to each client’s own savings targets. This target could be either an amount (the client would commit not to withdraw the funds until the amount was reached) or a date (the client would commit to leave the money in the account until that date). The client chose the type of commitment and the specific target. However, once those targets were set, they were binding, and the bank would enforce them. The interest rate was no higher than on a regular account. These accounts were proposed to a randomly selected set of clients. Of the clients they approached, about one in four agreed to open such an account. Out of those takers, a little over two-thirds chose the date goal, and the remaining one-third, the amount goal. After a year, the balances in the savings accounts of those who were offered the account were on average 81 percent higher than those of a comparable group of people who were not offered the account, despite the fact that only one in four of the clients who had been offered the account actually signed on. And the effects were probably smaller than they could have been, because even though there was a commitment not to withdraw any money, there was no positive force pushing the client to actually save, and many of the accounts that were opened remained dormant.

Yet most people preferred not to take up the offer of such an account. They were clearly worried about committing themselves to not withdrawing until the goal was reached. Dumas and Robinson ran into the same problem in Kenya—many people did not end up using that accounts they were offering, some of the because the withdrawal fees were too high and they did not want to have their money tied up in the account. This highlights an interesting paradox: There are ways to get around self-control problems, but to make use of them usually requires an initial act of self-control.

Abhijit Banerjee & Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, New York, 2011, pp. 197-198