IDEAS home Printed from https://ideas.repec.org/a/ucp/ecdecc/v55y2007p633-667.html
   My bibliography  Save this article

Contingent Loan Repayment in the Philippines

Author

Listed:
  • Marcel Fafchamps
  • Flore Gubert

Abstract

Using data from the Philippines, this article seeks to understand how households in the study area apparently manage to avoid falling into a debt trap in spite of frequent borrowing. Findings suggest that this is achieved via three institutional features. First, most informal debt carries no interest. Second, for all debts, repayment is postponed in case of a borrower’s difficulty; this is the only insurance feature of debt repayment. Third, while debt principal is seldom forgiven or reduced, interest-bearing debt does not carry additional interest if debt repayment is delayed. This prevents interest charges from accumulating and debt from snowballing.

Suggested Citation

  • Marcel Fafchamps & Flore Gubert, 2007. "Contingent Loan Repayment in the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 55(4), pages 633-667, July.
  • Handle: RePEc:ucp:ecdecc:v:55:y:2007:p:633-667
    DOI: 10.1086/516765
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/516765
    Download Restriction: Access to the online full text or PDF requires a subscription.

    File URL: https://libkey.io/10.1086/516765?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marcel Fafchamps, 2003. "Rural Poverty, Risk and Development," Books, Edward Elgar Publishing, number 3127.
    2. Platteau, J.P., 1996. "Traditional Sharing Norms as an Obstacle to Economic Growth in Tribal Societies," Papers 173, Notre-Dame de la Paix, Sciences Economiques et Sociales.
    3. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2000. "Mutual Insurance, Individual Savings and Limited Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(2), pages 216-246, April.
    4. Platteau, Jean-Philippe, 1995. "A framework for the analysis of evolving patron-client ties in agrarian economies," World Development, Elsevier, vol. 23(5), pages 767-786, May.
    5. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
    6. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    7. Kimball, Miles S, 1988. "Farmers' Cooperatives as Behavior Toward Risk," American Economic Review, American Economic Association, vol. 78(1), pages 224-232, March.
    8. Christopher Udry, 1994. "Risk and Insurance in a Rural Credit Market: An Empirical Investigation in Northern Nigeria," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 495-526.
    9. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
    10. Fafchamps, Marcel, 1996. "Sovereign debt, structural adjustment, and conditionality," Journal of Development Economics, Elsevier, vol. 50(2), pages 313-335, August.
    11. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
    12. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
    13. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    14. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    15. Platteau, Jean-Philippe, 1995. "An Indian Model of Aristocratic Patronage," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 636-662, October.
    16. Basu, Kaushik, 1986. "One Kind of Power," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 259-282, July.
    17. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    18. Udry, C., 1991. "A Competitive Analysis of Rural Credit : State-Contingent Loans in Northern Nigeria," Papers 630, Yale - Economic Growth Center.
    19. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    20. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    21. Kletzer, K.M. & Wright, B.D., 1990. "Sovereign Debt Renegotiation In A Consumption-Smoothing Model," Papers 610, Yale - Economic Growth Center.
    22. repec:dau:papers:123456789/4392 is not listed on IDEAS
    23. Dean M. Maki, 2000. "The growth of consumer credit and the household debt service burden," Finance and Economics Discussion Series 2000-12, Board of Governors of the Federal Reserve System (U.S.).
    24. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-1097, December.
    25. Carter, Michael R. & Zimmerman, Frederick J., 2000. "The dynamic cost and persistence of asset inequality in an agrarian economy," Journal of Development Economics, Elsevier, vol. 63(2), pages 265-302, December.
    26. Andrew D. Foster & Mark R. Rosenzweig, 2001. "Imperfect Commitment, Altruism, And The Family: Evidence From Transfer Behavior In Low-Income Rural Areas," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 389-407, August.
    27. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435, National Bureau of Economic Research, Inc.
    28. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
    29. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
    30. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
    31. Marcle Fafchamps, 1999. "Risk sharing and quasi-credit," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 257-278.
    32. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    33. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," The World Bank Economic Review, World Bank Group, vol. 4(3), pages 251-269, September.
    34. Rosenzweig, Mark R, 1988. "Risk, Private Information, and the Family," American Economic Review, American Economic Association, vol. 78(2), pages 245-250, May.
    35. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-976, October.
    36. Narayana R. Kocherlakota, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 595-609.
    37. Robert M. Townsend, 1995. "Financial Systems in Northern Thai Villages," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1011-1046.
    38. Joachim De Weerdt, 2002. "Risk-Sharing and Endogenous Network Formation," WIDER Working Paper Series DP2002-57, World Institute for Development Economic Research (UNU-WIDER).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marie Godquin & Manohar Sharma, 2005. "If only I could borrow more! Production and consumption credit constraints in the Philippines," Post-Print halshs-00193374, HAL.
    2. Mark Koyama, 2010. "The political economy of expulsion: the regulation of Jewish moneylending in medieval England," Constitutional Political Economy, Springer, vol. 21(4), pages 374-406, December.
    3. Kristina Czura & Stefan Klonner, 2018. "Financial Market Responses to a Natural Disaster: Evidence from Local Credit Networks and the Indian Ocean Tsunami," CESifo Working Paper Series 7354, CESifo.
    4. Rafael P. Ribas, 2020. "Liquidity constraints, spillovers, and entrepreneurship: evidence from a cash transfer program," Small Business Economics, Springer, vol. 55(4), pages 1131-1158, December.
    5. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
    6. Jared Rubin, 2009. "Social Insurance, Commitment, and the Origin of Law: Interest Bans in Early Christianity," Journal of Law and Economics, University of Chicago Press, vol. 52(4), pages 761-786, November.
    7. Marie Godquin & Manohar Sharma, 2005. "If only I could borrow more! Production and consumption credit constraints in the Philippines," Cahiers de la Maison des Sciences Economiques bla05008, Université Panthéon-Sorbonne (Paris 1).
    8. Lee Cronk & Athena Aktipis, 2021. "Design principles for risk-pooling systems," Nature Human Behaviour, Nature, vol. 5(7), pages 825-833, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    2. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
    3. Juan M. Gallego & Mariapia Mendola, 2013. "Labour Migration and Social Networks Participation in Southern Mozambique," Economica, London School of Economics and Political Science, vol. 80(320), pages 721-759, October.
    4. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 3, chapter 56, pages 2857-2908, Elsevier.
    5. Fafchamps, Marcel & Gubert, Flore, 2007. "The formation of risk sharing networks," Journal of Development Economics, Elsevier, vol. 83(2), pages 326-350, July.
    6. Dean Yang, 2005. "Coping With Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2001," Working Papers 534, Research Seminar in International Economics, University of Michigan.
    7. Yang Dean, 2008. "Coping with Disaster: The Impact of Hurricanes on International Financial Flows, 1970-2002," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-45, June.
    8. Blumenstock, Joshua E. & Eagle, Nathan & Fafchamps, Marcel, 2016. "Airtime transfers and mobile communications: Evidence in the aftermath of natural disasters," Journal of Development Economics, Elsevier, vol. 120(C), pages 157-181.
    9. McPeak, John, 2006. "Confronting the risk of asset loss: What role do livestock transfers in northern Kenya play?," Journal of Development Economics, Elsevier, vol. 81(2), pages 415-437, December.
    10. Marcel Fafchamps, 2002. "Inequality and Risk," WIDER Working Paper Series DP2002-07, World Institute for Development Economic Research (UNU-WIDER).
    11. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
    12. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," Econometrica, Econometric Society, vol. 76(4), pages 679-725, July.
    13. Sarolta Laczo, 2010. "Estimating Dynamic Contracts: Risk Sharing in Village Economies," 2010 Meeting Papers 687, Society for Economic Dynamics.
    14. Kurosaki, Takashi & Fafchamps, Marcel, 2002. "Insurance market efficiency and crop choices in Pakistan," Journal of Development Economics, Elsevier, vol. 67(2), pages 419-453, April.
    15. Yasuyuki Sawada, 2007. "The impact of natural and manmade disasters on household welfare," Agricultural Economics, International Association of Agricultural Economists, vol. 37(s1), pages 59-73, December.
    16. Ligon, Ethan & Thomas, Jonathan & Worrall, Tim, 1997. "Informal Insurance Arrangements in Village Economies," CUDARE Working Papers 198657, University of California, Berkeley, Department of Agricultural and Resource Economics.
    17. Fischer, Gregory, 2013. "Contract structure, risk sharing and investment choice," LSE Research Online Documents on Economics 46796, London School of Economics and Political Science, LSE Library.
    18. Marcel Fafchamps & Aditya Shrinivas, 2022. "Risk Pooling and Precautionary Saving in Village Economies," NBER Working Papers 30128, National Bureau of Economic Research, Inc.
    19. Fafchamps, Marcel, 1996. "Sovereign debt, structural adjustment, and conditionality," Journal of Development Economics, Elsevier, vol. 50(2), pages 313-335, August.
    20. Masahiro Shoji, 2018. "Incentive for risk sharing and trust formation: experimental and survey evidence from Bangladesh," Oxford Economic Papers, Oxford University Press, vol. 70(4), pages 1062-1083.

    More about this item

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:ecdecc:v:55:y:2007:p:633-667. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://www.journals.uchicago.edu/EDCC .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/EDCC .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.