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Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines
Last registered on January 21, 2018

Pre-Trial

Trial Information
General Information
Title
Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines
RCT ID
AEARCTR-0002688
Initial registration date
January 19, 2018
Last updated
January 21, 2018 7:56 PM EST
Location(s)
Region
Primary Investigator
Affiliation
Northwestern University
Other Primary Investigator(s)
PI Affiliation
Harvard University
PI Affiliation
Harvard Business School
Additional Trial Information
Status
Completed
Start date
2007-04-02
End date
2012-06-23
Secondary IDs
Abstract
A debt trap occurs when someone takes on a high-interest rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by re-financing). Studying such practices is important for understanding financial decision-making of households in dire circumstances, and also for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.
External Link(s)
Registration Citation
Citation
Karlan, Dean, Sendhil Mullainathan and Benjamin Roth. 2018. "Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines." AEA RCT Registry. January 21. https://doi.org/10.1257/rct.2688-1.0.
Former Citation
Karlan, Dean, Sendhil Mullainathan and Benjamin Roth. 2018. "Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines." AEA RCT Registry. January 21. https://www.socialscienceregistry.org/trials/2688/history/25128.
Experimental Details
Interventions
Intervention(s)
Intervention Start Date
2007-07-23
Intervention End Date
2010-11-01
Primary Outcomes
Primary Outcomes (end points)
Whether they have any moneylender debt for working capital, amount of moneylender debt for working capital, whether they coped with a household income shock using saving, whether they coped with a household income shock by borrowing, whether they coped with a household income shock by cutting consumption, total monthly household expenditures, whether they have any savings, take-home business profit on a typical day.
Primary Outcomes (explanation)
Secondary Outcomes
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
Experimental Design
We conducted three experiments: Chennai, India in 2007, Cagayan de Oro, Philippines in 2007, and Cagayan de Oro, Philippines in 2010 (from different markets than in 2007). Each experiment took place in urban market settings. Going stall to stall, we identified individuals eligible for the study based on the following criteria: (1) they were the decision-maker of the business, (2) they borrowed consistently from a professional moneylender (defined as interest rate at or above 5% per month) for the past five years, and (3) they had an outstanding balance of US$100 or below in the Philippines or US$50 or below in India with moneylenders.

Both 2007 experiments included the same four equal-sized treatment arms: debt payoff; financial education; debt payoff and financial education; and, control. We implemented a brief financial training in small groups of roughly 25 vendors by a professional survey team. The training emphasized two messages: (1) that lending at high rates from moneylenders led to a large loss of money and thus consumption every year compared with other alternatives, and (2) that savings and consumption discipline could help vendors avoid having to take out loans at all. The training included interactive activities, discussion, and lecture.

In the 2010 Philippines experiment, participants were randomized into one of four groups: debt payoff; savings account; debt payoff and savings account; and, control. All three treatment groups also received a 5-10 minutes financial education lesson (i.e., slightly briefer than the 2007 financial education, but no longer separately tested as its own treatment arm). Because of problems with insufficient compliance with account opening requirements (specifically, providing necessary documentation and identification), only a few savings accounts were opened, and thus there is nothing to analyze with respect to the savings account treatment arms. For analysis, we collapse this wave to two groups: debt payoff and financial training (with and without the offered savings account) and control.

In all three sites, the financial training was conducted prior to the announcement of the debt payoff. Several days after the financial training, surveyors went to those selected for debt payoff and informed them they had won a prize through the lottery. In the Philippines, as debt collectors generally collect repayments daily in this area, surveyors waited until the collectors arrived and paid off the debt in view of the vendors. In India, individuals were instructed to come to a central location to pickup money if they were in a debt payoff treatment group. The amount paid was equal to the amount the debt collector said was owed, up to 5,000 pesos (~US$100) in the Philippines or 3000 rupees (~$50) in India.

The 2007 Philippines and India experiments did not employ stratification. The 2010 Philippines experiment stratified on quintile of preexisting debt level. Baseline surveys measured (a) the history of their savings and debt over the past few years, (b) basic cognitive skills and educational level, (c) mental health that could be linked to ability to fulfill plans, (d) business information, e.g. assets and revenues, and (e) demographic data.

We conducted four follow-up surveys, starting 4-6 weeks after the debt payoff, and ending at the latest 2 years after the debt payoff. Follow-up surveys measured (a) whether the vendors had moneylender and other types of debt, (b) what changes have occurred in the business (i.e., if the business has expanded significantly or not) (c) any shocks the household has experienced, and how they coped, (d) some components of consumption, (e) savings.
Experimental Design Details
Randomization Method
Randomization was done in office by a computer. The 2007 Philippines and India experiments did not employ stratification. The 2010 Philippines experiment stratified on quintile of preexisting debt level.
Randomization Unit
Individual.
Was the treatment clustered?
No
Experiment Characteristics
Sample size: planned number of clusters
1000 in India 2007; 250 in Philippines 2007; 701 in Philippines 2010.
Sample size: planned number of observations
1000 in India 2007; 250 in Philippines 2007; 701 in Philippines 2010.
Sample size (or number of clusters) by treatment arms
In India 2007, 250 individuals in the control group, 250 in the pay-off only group, 250 in the financial training group, and 250 in the pay-off and financial training group. In Philippines 2007, 63 individuals in the control group, 62 in the pay-off only group, 62 in the financial training group, and 63 in the pay-off and financial training group. In Philippines 2010, 233 individuals in the control group and 468 in the pay-off and financial training group.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB
INSTITUTIONAL REVIEW BOARDS (IRBs)
IRB Name
IRB Approval Date
IRB Approval Number
Post-Trial
Post Trial Information
Study Withdrawal
Intervention
Is the intervention completed?
No
Is data collection complete?
Data Publication
Data Publication
Is public data available?
No
Program Files
Program Files
Reports and Papers
Preliminary Reports
Relevant Papers