I designed and implemented the installment-savings commitment product in cooperation with 1st Valley Bank, based in Mindanao, Philippines. 1st Valley Bank is a small rural bank that offers microcredit, agricultural insurance, salary loans, and pension products. The bank agreed to offer both the installment-savings product and the withdrawal-restriction product in two of their branches: Gingoog and Mambajao. Gingoog is a city of 112,000 people in northern Mindanao, and Mambajao is a municipality of 36,000 people on Camiguin Island. For these two branches, the IS and the WR account constituted new product additions.
The sample was obtained through door-to-door visits in all low and middle income areas in proximity to the bank branches. In each household, the survey team identified the person in charge of managing the household budget (usually the mother of the family). The baseline survey was completed with all such individuals who (i) had some form of identification, (ii) claimed to have a large upcoming expenditure (such as school fees, house repairs, or business expansions) and (iii) agreed to receive a visit from a financial advisor (to talk about how to manage household expenses). These screening rules were intentionally minimal: 81 percent of initial respondents were included in the sample. After the baseline survey, individuals were randomly assigned to three groups: 50 percent of individuals were assigned to an 'Installment Savings' (IS) group, and 25 percent each were assigned to a 'Withdrawal Restriction' (WR) and a control (C) group. Participants were not aware that they are taking part in an experiment.
Approximately one week after the baseline survey, individuals received a visit from a bank marketer. Marketers engaged individuals in a conversation about how to manage large lump-sum expenses, and talked about the benefits of saving. Focusing on one particular expenditure, individuals were encouraged to make a formal 'Personal Savings Plan', which contained a purpose, a goal amount, a goal date, and a fixed equal installment plan with due dates. The median savings goal was 2400 pesos (close to the median household's weekly income of 2125 pesos), with a median weekly installment of 150 pesos. Common savings goals were school tuition fees, house repairs, and Christmas gifts. The duration of savings plans was limited to 3–6 months (median: 137 days). In addition, everyone was offered a non-commitment savings account (henceforth called 'ordinary savings account'), containing a free 100 pesos opening balance as a 'welcome gift', along with an encouragement to use this account to save for the expenditure.
At the end of the visit, individuals in group IS were asked whether they wanted to commit to the fixed-installment structure outlined in their Personal Savings Plan by taking up the IS product, and the product features were explained. In contrast, individuals in group WR were offered to restrict withdrawals of their savings until they reached either the goal amount or the goal date specified in their Personal Savings Plan, implemented through the WR product. Clients were permitted to revise their savings goals upon accepting a commitment product. Up to the point of offering the commitment products, the marketing script was identical across groups IS, WR, and C. In group IS, 114 clients (out of 423 offered) accepted the IS product. In group WR, 92 (out of 219 offered) accepted the WR product.
The installment-savings product committed clients to a fixed installment plan with weekly (84 percent) or bi-weekly (16 percent) due dates. An account was considered in default from the day the client fell three installments behind. In case of default, the account was closed, an 'Early Termination Fee' was charged, and any remaining savings were returned to the client. A termination fee that is directly linked to the installment structure distinguishes the IS product from withdrawal-restriction or ordinary accounts, and represents its key commitment feature. The amount of the fee was chosen by the client upon signing the IS contract, and donated to charity in case of default. Clients were given a choice of three national (but not local) Philippine charities. A variety of flexibility features allowed clients to adapt to changing circumstances: First, clients could fall up to two installments behind at any given time, making it theoretically possible to miss every other installment, and pay a double installment in alternate weeks. To encourage timely depositing, a small 10 peso ($0.25) admin fee had to be paid upon making up a missed past installment, but this fee did not accumulate over time. Deposits towards future weeks could be made at any time, as long as they were in increments of the weekly installment. This was a practical requirement, as the client's progress was monitored by making ticks on a collection card for each successful week. The possibility of making future deposits early effectively provided a form of insurance against uneven income streams. Withdrawals during the savings period were only possible by allowing default to occur.
Enforceability of the termination fee was facilitated through the account opening balance: To complete the opening of an IS account, clients had to deposit an opening balance equal to their first weekly installment, but at least 150 pesos (250 pesos) for savings goals below (above) 2500 pesos. Using the same threshold, clients could choose a termination fee as high as they liked, but no lower than a minimum of 150 pesos (250 pesos). Consequently, the minimum termination fee (chosen by 80 percent of clients) could always be enforced. Termination fees above the minimum could be enforced only if the client continued to save, or if their opening balance exceeded the minimum. By construction, all IS accounts were either successfully completed or in default by the goal date, and any remaining savings were transferred to clients' ordinary savings accounts.
The withdrawal-restriction account was simpler in structure: Clients chose to restrict withdrawals before a specified goal was reached. Out of 92 WR clients, 39 chose a goal amount, and 53 chose a goal date. The goal amount can be interpreted as the stronger restriction, since additional deposits need to be made in order to receive savings back. There was no time limit for reaching the goal amount. However, as is common for Philippine banks, significant dormancy fees were applied after two years of inactivity. The minimum opening balance for the WR account was 100 pesos. For both IS and WR, opening balances were collected one week after contract signing. The practical motivation was to give individuals time to prepare for the expense. The theoretical motivation was to free the decisionmaker from temptation in the contract-signing period – a sophisticated hyperbolic discounter should choose a welfare-maximising contract when asked in period 0, but not necessarily when asked in period 1. Finally, both products shared the same emergency provisions: In case of a medical emergency or death in the family, a relocation to an area not served by the bank, or a natural disaster, clients could close their account and access their savings without any penalties. Within the six months of observation, no client exercised this option.
Individuals were left to themselves during the savings period, without help from deposit collectors or reminders. After all goal dates had been reached, a comprehensive endline survey asked about savings, outstanding loans, expenditures, changes in income, and various types of shocks experienced. In addition, existing IS clients were offered to 'pre-order' IS for a second round, and told that the bank would continue the product conditional on sufficient demand. While the Pre-Order did not involve a financial commitment, it required the completion of substantial paperwork and a new savings plan (to deter cheap talk).