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Over-indebtedness and its welfare effect on households

Over-indebtedness and its welfare effect on households Although credit plays a crucial role in modern society, the increased availability of credit is partly responsible for higher levels of debt burden and household over-indebtedness. However, despite the serious consequences of over-indebtedness on household welfare our understanding of the factors that determine over-indebtedness and the link between over-indebtedness and poverty is limited. The purpose of this paper is therefore to identify drivers of over-indebtedness at an individual level and its link with poverty.Design/methodology/approachThe authors analysed the determinants of over-indebtedness and its links with poverty employing a binary logistic regression model using data on 51,359 individuals from 11 economies in the Southern Africa Development Community.FindingsThe results suggest that over-indebtedness is driven by, among others, lack of credit literacy, cross-borrowing and income. The results also suggest that over-indebtedness is likely to impoverish the indebted.Practical implicationsPolicies that encourage access to financial services such as credit should be designed such that increased financial inclusion does not aggravate poverty and inequality.Originality/valueThe authors used a unique financial inclusion survey that reports data on financial inclusion and poverty measures to identify the determinants of over-indebtedness and its link with poverty. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png African Journal of Economic and Management Studies Emerald Publishing

Over-indebtedness and its welfare effect on households

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2040-0705
DOI
10.1108/ajems-04-2018-0105
Publisher site
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Abstract

Although credit plays a crucial role in modern society, the increased availability of credit is partly responsible for higher levels of debt burden and household over-indebtedness. However, despite the serious consequences of over-indebtedness on household welfare our understanding of the factors that determine over-indebtedness and the link between over-indebtedness and poverty is limited. The purpose of this paper is therefore to identify drivers of over-indebtedness at an individual level and its link with poverty.Design/methodology/approachThe authors analysed the determinants of over-indebtedness and its links with poverty employing a binary logistic regression model using data on 51,359 individuals from 11 economies in the Southern Africa Development Community.FindingsThe results suggest that over-indebtedness is driven by, among others, lack of credit literacy, cross-borrowing and income. The results also suggest that over-indebtedness is likely to impoverish the indebted.Practical implicationsPolicies that encourage access to financial services such as credit should be designed such that increased financial inclusion does not aggravate poverty and inequality.Originality/valueThe authors used a unique financial inclusion survey that reports data on financial inclusion and poverty measures to identify the determinants of over-indebtedness and its link with poverty.

Journal

African Journal of Economic and Management Studies – Emerald Publishing

Published: May 24, 2019

Keywords: Africa; Poverty; Financial inclusion; Debt; SADC

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