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REPAY AS YOU EARN: LOAN REPAYMENT FREQUENCY, CASH FLOWS, AND SAVINGS OF HOUSEHOLDS
Author(s) -
Ravi Shamika
Publication year - 2014
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.2884
Subject(s) - loan , cash , economics , business , matching (statistics) , cash flow , operating cash flow , finance , monetary economics , labour economics , statistics , mathematics
This paper analyses household cash management and provides evidence that a household's access to credit is directly improved by its savings. Households that are unable to save tie loan repayment to cash flows and repay as soon as money is earned. We find that income frequency increases loan repayment frequency by 32%, but this effect reduces significantly on controlling for savings. Results also show that households on average pay 3.6% higher interest on loans with repayment schedules matching household cash flows. We show this by exploiting unique ‘preferred’ loan repayment data available for each household and by using presence of marriageable‐age girls in household as instrument for savings. Copyright © 2012 John Wiley & Sons, Ltd.