Credit Use, Credit Delinquency Rates and Remittances
65 Pages Posted: 19 Aug 2022 Last revised: 12 Dec 2024
Date Written: October 21, 2023
Abstract
This paper examines the impact of remittances on credit and provides the first evidence about their effect on delinquency rates. Using a dataset of more than 34 million consumer loans in Mexico and instrumenting for remittances with U.S. unemployment exposure at the municipality level, we uncover two effects overlooked in the literature. First, a “substitution” effect where low-income borrowers, especially women, use remittances to avoid delinquency. Second, a “complementary” effect where remittances increase credit but solely for securing loans with favorable terms. These findings highlight remittances’ role in reducing credit risk and supporting financial development in low- and middle-income economies.
Keywords: Remittances, Consumer Credit, Default, Financial Development
JEL Classification: G51, F30, F22
Suggested Citation: Suggested Citation