Medical treatment loans and their effects on health care utilization and out-of-pocket expenditure: Evidence from an experiment in northern Bangladesh

In low- and middle-income countries, the absence of formal health insurance often forces households to resort to credit for covering healthcare expenses and stabilising consumption. Traditional microcredit offerings frequently impede swift access to funds, limiting households’ ability to mitigate unforeseen health costs. Through a cluster-randomised controlled trial across 24 microfinance branches in northern Bangladesh, we investigated how modifying the features of an existing health credit scheme and reducing transaction costs could enhance credit accessibility. Our findings indicate that relaxing specific scheme features led to increased credit accessibility. This heightened access, triggered by health shocks, corresponded with a rise in utilising formal healthcare services. While we observed an overall uptick in out-of-pocket expenditures, this remained unchanged when excluding the borrowed amount. Our study suggests health credit initiatives promote formal healthcare-seeking behaviours and stimulate higher health-related spending. Immediate access to financial resources alleviates liquidity constraints, enabling increased health spending, facilitating consumption smoothing, and potentially enhancing welfare, particularly where efficient and equitable healthcare financing options are limited.