Indebtedness and labor risk sorting across consumer lender types in Chile

Carlos Madeira

Journal of Banking Regulation, 2025, vol. 26, issue 2, No 3, 149-163

Abstract: Abstract Chile’s consumer loan market has strong concerns about high indebtedness levels and credit constraints. Using survey data, I show that banks have the borrowers of highest income and education and the lowest unemployment rates, while households with no access to debt have the lowest income and education and the highest unemployment risk. I then simulate the effects of counterfactual policies, such as increased borrower repayment capacity tests and better financial literacy. Repayment capacity testing reduces the number of borrowers, aggregate debt amounts, and debt risk across all lender types. Financial literacy program has even stronger effects, reducing the number of borrowers, aggregate debt amounts, and delinquency risk by more than half across all lender types. The financial literacy program achieves its effect by increasing the number of households with “No wish for debt,” while the repayment capacity test has the downside of increasing the number of households with “No access to debt.”

Keywords: Consumer credit; Unemployment; Credit constraints; Labor income risk; Credit information laws; Financial literacy (search for similar items in EconPapers)
JEL-codes: D12 G20 G50 G53 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1057/s41261-024-00250-1

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