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

68 Pages Posted: 5 Feb 2018 Last revised: 28 Apr 2023

See all articles by Dean Karlan

Dean Karlan

Northwestern University

Sendhil Mullainathan

University of Chicago; National Bureau of Economic Research (NBER)

Benjamin Roth

Harvard University - Business School (HBS)

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Date Written: February 2018

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.

Suggested Citation

Karlan, Dean and Mullainathan, Sendhil and Roth, Benjamin, Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines (February 2018). NBER Working Paper No. w24272, Available at SSRN: https://ssrn.com/abstract=3118050

Dean Karlan (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Sendhil Mullainathan

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

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Benjamin Roth

Harvard University - Business School (HBS) ( email )

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Boston, MA 02163
United States

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