When households first borrow: causes and consequences

Geetika Palta (), Renuka Sane () and Susan Thomas ()
Additional contact information
Geetika Palta: xKDR Forum
Renuka Sane: Trustbridge
Susan Thomas: xKDR Forum

No 49, Working Papers from xKDR

Abstract: We examine the impact of borrowing on consumption smoothing for households entering credit markets for the first time, using a large panel dataset with income, expenditure and financial choices of 150,000 households in India. Compared to households that never borrow, first-time borrowers are poorer, younger, less educated, and face higher income volatility. Their decision to borrow is often preceded by a change in income or consumption, regardless of whether it is a decrease or an increase. The act of borrowing increases both the level and the volatility of consumption expenditure. Credit does not help to smooth consumption, even for first time borrowers with no shocks to income and consumption. Higher volatility of consumption persists after borrowing, particularly for expenditure on non-durable goods such as food or planned household expenditure. This suggests that new borrowers use credit as one component of a broader risk-management strategy that involves multiple adjustments within their consumption portfolio.

JEL-codes: D14 E21 G51 I32 O16 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2026-06
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.xkdr.org/papers/2025Paltaetal_newtocredit.pdf First version, 2026 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anf:wpaper:49

Access Statistics for this paper

More papers in Working Papers from xKDR
Bibliographic data for series maintained by Ami Dagli ().