The Price of Deposit Liquidity: Banks versus Microfinance Institutions
Posted: 25 Nov 2014 Last revised: 9 Jun 2016
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The Price of Deposit Liquidity: Banks Versus Microfinance Institutions
Date Written: February 26, 2016
Abstract
Using data from Bangladesh, this article 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-inconsistency among the poor. The observed difference in liquidity premia could be due to poor time-inconsistent agents willing to forgo interest on illiquid savings accounts in order to discipline their future selves.
Keywords: Liquidity premium; present-bias; banks; microfinance; Bangladesh
JEL Classification: G21, D14, O16
Suggested Citation: Suggested Citation