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Repay As You Earn: Loan Repayment Frequency, Cash Flows, And Savings Of Households

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  • Shamika Ravi

Abstract

This paper analyses household cash management and provides evidence that a household's access to credit is directly improved by its savings. Households that are unable to save tie loan repayment to cash flows and repay as soon as money is earned. We find that income frequency increases loan repayment frequency by 32%, but this effect reduces significantly on controlling for savings. Results also show that households on average pay 3.6% higher interest on loans with repayment schedules matching household cash flows. We show this by exploiting unique ‘preferred’ loan repayment data available for each household and by using presence of marriageable‐age girls in household as instrument for savings. Copyright © 2012 John Wiley & Sons, Ltd.

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  • Shamika Ravi, 2014. "Repay As You Earn: Loan Repayment Frequency, Cash Flows, And Savings Of Households," Journal of International Development, John Wiley & Sons, Ltd., vol. 26(4), pages 438-453, May.
    • Handle: RePEc:wly:jintdv:v:26:y:2014:i:4:p:438-453
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    Cited by:

    1. Carolina Laureti, 2015. "The Debt Puzzle in Dhaka’s Slums: Do Poor People Co-hold for Liquidity Needs?," Working Papers CEB 15-021, ULB -- Universite Libre de Bruxelles.
    2. Mohd Abass Bhat & Geleta Demera Gomero & Shagufta Tariq Khan, 2024. "Antecedents of Savings Behaviour Among Rural Households: A Holistic Approach," FIIB Business Review, , vol. 13(1), pages 56-71, January.
    3. Carolina Laureti, 2017. "Why do Poor People Co-hold Debt and Liquid Savings?," Working Papers CEB 17-007, ULB -- Universite Libre de Bruxelles.
    4. Omotuyole Isiaka Ambali & Toritseju Begho, 2021. "Examining the relationship between farmers' perceived trust and investment preferences," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(8), pages 1290-1303, November.

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