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Contingent Loan Repayment in the Philippines

  • Marcel Fafchamps
  • Flore Gubert

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.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/516765
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Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 55 (2007)
Issue (Month): ()
Pages: 633-667

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Handle: RePEc:ucp:ecdecc:v:55:y:2007:p:633-667
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