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households making any voluntary deposits. This may have been because they gave higher priority to loan repayments. This makes sense, as loans incurred much higher interest rates (11% - 120%) than savings (0-7% interest), and households were struggling to repay their loans. All KHCP staff have Provident Funds, although some had withdrawn funds previously (with the employer’s permission), either to pay off debt or make an investment. This is by far the most significant savings type, and not all low-income households would have this option. It became obvious that most savings of household participants is compelled by employers or lenders. At one point Lipi said
“I don’t want to take any more loans. I will try to live off savings and two people’s incomes. But if I am short of funds, I will need to take loans and no one lends interest free”.
However, I did not see any evidence of a savings culture amongst research participants.
I found none of the seven households left their savings with anyone else during the financial diaries period (aside from the formal institutions listed below), and only one of them kept savings on behalf of others. On the whole, they held little cash-in-hand and conceded they had immediate expenses to pay after receiving their salaries.
Figure 15 shows the level of savings across all households at the end of the financial diaries period. No one withdraw their savings and some savings remained constant, but there were small increases in accordance with their employer’s contributions to their Provident Funds, and compulsory savings required by NGOs, credit unions, SBF and shomitis.
Figure 15: Total savings across all households (at end of financial diaries)
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When I excluded the Provident Fund (which is generally not accessible until retirement) from households’ savings levels, it is obvious in Figure 18 below that the debts of all households far exceeded their savings. This shows a lack of savings culture amongst research participants, which again they attributed to having insufficient income to cover their household expenses. These savings ranged between a third of a month’s salary and five months salary.
Figure 16: Savings and Debts at end of Financial Diaries (except Provident Fund)
Source: Author
Secondly, when considering borrowing tendencies, the field of behavioural finance has exposed interesting trends, such as the borrower’s inclination to simplify complex decisions, a
preference for seemingly ‘consistent’ decisions, avoiding emotional discomfort, and the finding that emotions such as shame, stress or fear can override logical reasoning (Guerin, 2012:7).I do not have any expertise in behavioural finance, so I can only comment anecdotally on
observations from my research fieldwork where it was clear that stress and shame are motivating factors, as shown in chapter four and five in terms of the stigma caused by lender visits. However, it makes sense that borrowing behaviour is not purely driven by logical reasoning. Studies have also identified several triggers of household over-indebtedness, including lack of self-control, impulsivity, procrastination, over-estimation of abilities and conformity to social norms (Guerin, 2012:8).Academics also talk of a ‘present bias’ amongst borrowers, where borrowers put more weight on their present needs, as future consequences may seem less real (Schicks & Rosenberg, 2011).This could result in households borrowing in haste and regretting their actions as they struggle to repay the loan.
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When looking at why people borrow, Guerin et al. (2011) investigate the causes of over- indebtedness in another South Asian context: Tamil Nadu in South India. Their fieldwork illustrates the material struggles of villagers but also their growing social aspirations, influenced by greater exposure to TV advertising and a culture of consumerism. Households were willing to take on debt not just for economic investments, health and food security, but also ceremonies, gifts and private education expenses (Ibid, 2011:13).My research examines various uses of loan funds in the Bangladeshi context amongst salaried microborrowers, and whether this reflects similar aspirations. The phenomenon of habit persistence can cause borrowers to reduce consumption too slowly when their net income declines (Schicks & Rosenberg, 2011).
However, this may be symptomatic of a gulf in expectations of what a borrower was prepared to give up for the loan and subsequent sacrifices which go beyond this expectation. This
phenomenon may be less applicable to the households of salaried microborrowers, as their income remains relatively stable unless a second income earner loses their income flow.
Interestingly, none of the households lent money (even haolats) to others during the course of the financial diaries month. I had expected more of this, as I had read in the microfinance literature that even poor households often lent to each other, and haolats could involve
reciprocal obligations to lend to the other person at some time in the future. Various comments were made by the participants such as, “Why would I do that? I don’t have enough money myself.” and “No, that’s too much hassle”. Perhaps they saw themselves as more heavily in debt than a number of their friends or colleagues, and therefore felt unable to assist others.
Finally, I consider the influence of financial behaviour on household indebtedness within the literature and amongst my financial diary participants. I focus primarily on borrowing behaviour, because savings were generally compelled by employers or lending organisations, they did not lend funds to others, and repayment strategies were covered in chapter five.
During the focus group discussions, participants identified 19 loan expenditure categories, and I added a miscellaneous category to cover remaining expenses. These categories were used again at the household interview stage. They are listed in Figure 16 and ordered by the frequency with which they came up in the data. Only four of the categories (luxury items, addictive substances, going overseas for work, and defending a court case) did not emerge in the spending on current loans. However, it is likely these would emerge in a broader sample group. It is also possible that borrowers did not admit to spending loans on luxuries or addictive substances.