Microcredit and microsavings for small enterprises in Pakistan

Urban micro credit in Pakistan c. World Bank/Flickr

Urban micro credit in Pakistan c. World Bank/Flickr

Dr Simon Quinn, University of Oxford

Start: Sep 2014  |  End: Aug 2017

Research Councils UK project page

Recent research on microfinance suggests that savings products may be more useful for poor communities than loan products. 

Motivated by this research, the project aims to address two main questions:

  1. How do ROSCA-like (Rotating Savings and Credit Associations) products compare to standard loan contracts for microenterprises?
  2. Can banks overcome contract enforcement problems in offering ROSCA-like financial products?

To understand how savings products can be improved for the poor, we need to understand several important issues;

  • Why the poor do not save more?
  • How does household behaviour change when the household is a debtor, rather than a creditor?
  • Can better microfinance products be developed to facilitate saving?

The research will use Randomised Controlled Trials on assigned microenterprises, using a 'cluster-randomised' design, treating in some locations but not in others. In treated locations, firms will be assigned to different positions in a rotating credit structure and interest rates will be varied. A baseline and three follow-up surveys of the targeted microenterprises will be conducted at three-month intervals in control and treated locations, to form a four-wave panel. High frequency data using short phone surveys will be collected, and we will augment this sample with data generated by the bank internally.

We anticipate that the research results will have direct relevance to both policymakers and microfinance providers. If our product proves viable, it could provide small enterprises with a mechanism to increase investment and employment - and, in turn, to drive growth.