Does knowledge empower? A story of debt literacy and credit usage in rural consumer finance

Remya Tressa Jacob () and Rudra Sensarma
Additional contact information
Remya Tressa Jacob: Indian Institute of Management Kozhikode

No 529, Working papers from Indian Institute of Management Kozhikode

Abstract: We study the role of debt literacy as an empowerment device in accessing credit in rural India. We use primary data collected from 600 rural households in the state of Kerala in India, that include measures of credit usage and debt literacy drawn from the literature. Using Instrumental Variable regressions, we find a positive and significant effect of debt literacy on credit usage. We find similar results in subsamples comprising of agricultural households and female respondents. This finding is in contrast withprior studies that found a negative relation between debt literacy and debt. Our finding that individualswith higher debt literacy tend to hold more debt underscores the importance of debt literacy in theirability to avail of credit. We obtain similar findings when we repeat the analysis with a national level dataset and use treatment effects based on inverse probability weighting with regression adjustment. Our findings could help financial institutions to use debt literacy training as a part of responsible lending and could also inform the design of financial education policies to address the informational and capability limitations of households.

Keywords: household finance; financial inclusion; financial decisions; financial literacy; credit usage; rural consumers (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-03
References: Add references at CitEc
Citations:

Downloads: (external link)
https://iimk.ac.in/uploads/publications/IIMK_WPS_529_ECO_2022_10_Upload_File.pdf
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iik:wpaper:529

Access Statistics for this paper

More papers in Working papers from Indian Institute of Management Kozhikode IIMK Campus PO, Kunnamanagalam, Kozhikode, Kerala, India -673570. Contact information at EDIRC.
Bibliographic data for series maintained by Sudheesh Kumar ().