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Contingent Loan Repayment in the Philippines

  • Gubert, Flore
  • Fafchamps, Marcel

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://basepub.dauphine.fr/xmlui/bitstream/123456789/4568/1/2002-14.pdf
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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4568.

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Date of creation: Jul 2007
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Publication status: Published in Economic Development and Cultural Change, 2007, Vol. 55, no. 4. pp. 633-667.Length: 34 pages
Handle: RePEc:dau:papers:123456789/4568
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. Marcel Fafchamps & Flore Gubert, 2005. "The Formation of Risk Sharing Networks," Working Papers DT/2005/13, DIAL (Développement, Institutions et Mondialisation).
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  19. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
  20. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
  21. Udry, C., 1991. "A Competitive Analysis of Rural Credit : State-Contingent Loans in Northern Nigeria," Papers 630, Yale - Economic Growth Center.
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  25. Udry, Christopher, 1990. "Credit Markets in Northern Nigeria: Credit as Insurance in a Rural Economy," World Bank Economic Review, World Bank Group, vol. 4(3), pages 251-69, September.
  26. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
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  28. 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.
  29. 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.
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