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Does knowledge empower? Debt literacy and credit usage in rural consumer finance

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  • Jacob, Remya Tressa
  • Sensarma, Rudra

Abstract

The study examines the role of debt literacy as an empowerment device in accessing credit in rural India. We analyse data from the first national survey conducted within the new institutional context of high levels of financial inclusion. Using Instrumental Variable regressions, we find a positive and significant effect of debt literacy on credit usage for female respondents. This is in contrast with international studies that found a negative relation between debt literacy and debt. Our finding that individuals with higher debt literacy tend to hold more debt underscores the importance of debt literacy in their ability to avail of credit. Our major results remain consistent in the robustness check using Propensity Score Matching and other follow-up analyses. Our findings could help financial institutions 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 rural households.

Suggested Citation

  • Jacob, Remya Tressa & Sensarma, Rudra, 2026. "Does knowledge empower? Debt literacy and credit usage in rural consumer finance," Pacific-Basin Finance Journal, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:pacfin:v:96:y:2026:i:c:s0927538x25003841
    DOI: 10.1016/j.pacfin.2025.103047
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    Keywords

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    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G50 - Financial Economics - - Household Finance - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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