Households, Financial Distress, and Predatory Lending: An Experimental Study
Journal Title: Jurnal Keuangan dan Perbankan - Year 2017, Vol 21, Issue 3
Abstract
A substantial part of households and micro enterprises, particularly in developing countriesincluding Indonesia, did not have access to formal financial institutions which thenlead them to borrow money from illegal loan providers. Using an experimental study, wetested whether predatory loan, an illegal short-term loan with high interest rate, waspreferable or not by comparing with pawnshop loan, bank loan and household’s limitedsaving when households confront with financial distress. We divided the participantsinto three groups: lower low, low, and upper low income. We found that predatory loanwas preferable especially for lower low and low income group. Result also confirmedthat even if the predatory loan charge was increased, the lower low- and low-incomegroups still prefer to ease their financial distress through predatory loans. Moreover, thelonger the duration of the predatory loan, the higher its probability to be chosen as afunding source in times of household financial distress.
Authors and Affiliations
Irwan trinugroho, Ariyanto Adhi Nugroho, Harmadi Harmadi, Joko Suyono
Keywords
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