Household credit, growth and inequality in Malaysia: does the type of credit matter?

Do different types of household credit affect income growth and income inequality differently? This empirical paper investigates this question by employing both macrolevel data and micro-level household survey data, covering the period since 1997. We find that the different types of household credit matter, and our contributions are twofold. First, on income growth, both macro- and micro-analyses consistently find housing credit to be positively associated with future income growth, while consumption credit shows no significant evidence. Second, on income inequality, the results are more nuanced. At the macro level, housing credit in terms of total net disbursements is positively related to income inequality. However, the micro-level data, which investigate the proportion of households with housing loans, find a negative relationship with income inequality. We interpret these two sets of empirical results for housing credit to imply that financial inclusion that improves access to housing credit for more households would likely reduce income inequality. Meanwhile, further accumulation of housing credit for existing borrowers may worsen income inequality given the likely concentration of housing wealth among richer households. The findings in our paper fill a research gap for the Malaysian economy and could serve to inform policies, especially in relation to the broader discussion of household indebtedness.