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

68 Pages Posted: 19 Feb 2018 Last revised: 4 Jun 2018

See all articles by Dean Karlan

Dean Karlan

Northwestern University

Sendhil Mullainathan

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Benjamin Roth

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 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.

Keywords: debt, moneylender, household finance

JEL Classification: D12, D91, O12

Suggested Citation

Karlan, Dean and Mullainathan, Sendhil and Roth, Benjamin, Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines (January 1, 2018). Buffett Institute Global Poverty Research Lab Working Paper No. 18-101. Available at SSRN: https://ssrn.com/abstract=3126399 or http://dx.doi.org/10.2139/ssrn.3126399

Dean Karlan (Contact Author)

Northwestern University

2001 Sheridan Road
Evanston, IL 60208
United States

Sendhil Mullainathan

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-2720 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-588-1473 (Phone)
617-876-2742 (Fax)

Benjamin Roth

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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