Determinants of consumer credit within a constrained framework: evidence from Colombian microdata

Luis Arango Thomas and Lina Cardona-Sosa

Borradores de Economia from Banco de la Republica de Colombia

Abstract: In this paper, we study the determinants of consumer credit using microdata from a Credit Union in Colombia. To the best of our knowledge, this is the first study to use this type of data in Latin America. We present evidence of liquidity constraints and some of the ways these appear; nevertheless, we still find that variables related to the life cycle–permanent income hypothesis are important determinants of the demand for consumer debt. The elasticity of current income is between 0.3 and 0.7, while the semielasticity of the real interest rate is around –1.4. If individuals are homeowners and have some school attainments, they have an increased demand for debt. Similarly, their level of indebtedness drives them to acquire more debts instead of deterring them from borrowing. Once the supply side is considered, we provide evidence that the score assigned to individuals is a significant determinant in deciding which credit is approved by the Credit Union and which is not. At the same time, the indebtedness of individuals and their performance with regards to current debt are determinants of the trimming-down of the amounts requested by customers. Interestingly, when we include these latter variables in the specifications, the interest rate becomes a positive determinant of consumer credit supply.

Keywords: consumer credit; credit constraints; score; indebtedness; life cycle-permanent income hypothesis (search for similar items in EconPapers)
JEL-codes: D12 G21 (search for similar items in EconPapers)
Pages: 23
Date: 2015-11
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:912

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