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Discussion Paper Details

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Title: Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines

Author(s): Dean S. Karlan, Sendhil Mullainathan and Benjamin Roth

Publication Date: January 2018

Keyword(s): debt, household finance and moneylender

Programme Area(s): Development Economics and Financial Economics

Abstract: A debt trap occurs when someone takes on a high-interest rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by re-financing). Studying such practices is important for understanding financial decision-making of households in dire circumstances, and also for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.

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Bibliographic Reference

Karlan, D, Mullainathan, S and Roth, B. 2018. 'Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12666