Flexible Debt Relief and Credit Behavior: Evidence from Loan-Level Data

Worarit Vannavanit, Sommarat Chantarat, Lathaporn Ratanavararak and Kazushi Takahashi

No 253, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This paper evaluates a flexible debt relief program that combines traditional debt forbearance with “principal-first†repayment incentive – whereby the very first baht of loan repayment during the program goes towards principal reduction. Using loan-level data from the National Credit Bureau and a fuzzy regression discontinuity design, we find that while the built-in forbearance reduces overall repayment probability, 49% of program participants maintain repayment. In addition, the principal-first feature successfully increases repayment intensity at the cutoff among those who make meaningful repayments. At the same time, the program significantly mitigates credit deterioration and generates positive spillovers, prompting borrowers to reallocate freed-up liquidity toward non-relief loans with stricter enforcement. These findings demonstrate that embedding repayment incentives within debt forbearance introduces contract flexibility that effectively reveals borrowers’ latent repayment capacity. This allows the design to function simultaneously as a critical safety net for financially distressed borrowers and an active incentive for capable borrowers to accelerate debt reduction.

Keywords: Flexible contract; Debt relief; Debt restructuring; Farmer debt; Household debt (search for similar items in EconPapers)
JEL-codes: D90 G21 G50 G51 Q14 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2026-05
New Economics Papers: this item is included in nep-mfd
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.pier.or.th/files/dp/pier_dp_253.pdf (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:pui:dpaper:253

Ordering information: This working paper can be ordered from
https://www.pier.or.th/en/dp/253/

Access Statistics for this paper

More papers in PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ().