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Determinants of consumer credit within a constrained framework: evidence from Colombian microdata

Author

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  • Luis Eduardo Arango

    (Banco de la República de Colombia)

  • Lina Cardona-Sosa

    (Banco de la República de Colombia)

Abstract

In this paper, we study the determinants of consumer credit using microdata from a Credit Union in Colombia. To the best of our knowledge, this is the first study to use this type of data in Latin America. We present evidence of liquidity constraints and some of the ways these appear; nevertheless, we still find that variables related to the life cycle–permanent income hypothesis are important determinants of the demand for consumer debt. The elasticity of current income is between 0.3 and 0.7, while the semielasticity of the real interest rate is around –1.4. If individuals are homeowners and have some school attainments, they have an increased demand for debt. Similarly, their level of indebtedness drives them to acquire more debts instead of deterring them from borrowing. Once the supply side is considered, we provide evidence that the score assigned to individuals is a significant determinant in deciding which credit is approved by the Credit Union and which is not. At the same time, the indebtedness of individuals and their performance with regards to current debt are determinants of the trimming-down of the amounts requested by customers. Interestingly, when we include these latter variables in the specifications, the interest rate becomes a positive determinant of consumer credit supply.

Suggested Citation

  • Luis Eduardo Arango & Lina Cardona-Sosa, 2015. "Determinants of consumer credit within a constrained framework: evidence from Colombian microdata," Borradores de Economia 912, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:912
    DOI: 10.32468/be.912
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    More about this item

    Keywords

    consumer credit; credit constraints; score; indebtedness; life cycle-permanent income hypothesis;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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