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  • June 2019
  • Article
  • American Economic Review: Insights

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

By: Dean Karlan, Sendhil Mullainathan and Benjamin Roth
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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 refinancing). Studying such practices is important for understanding financial decision-making of households in dire circumstances as well as 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

Borrowing and Debt; Household; Personal Finance; Decision Making; Behavior; India; Philippines

Citation

Karlan, Dean, Sendhil Mullainathan, and Benjamin Roth. "Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines." American Economic Review: Insights 1, no. 1 (June 2019): 27–42.
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About The Author

Benjamin N. Roth

Entrepreneurial Management
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