Productive vs. unproductive borrowing: insights from HIES data on household consumption patterns

Abstract

This research focuses on the contrasting effects of productive and unproductive borrowing on household welfare in Bangladesh, and it utilizes the data from the Household Income and Expenditure Survey (HIES) 2022, which is nationally representative. It is generally assumed that income‑generating loans are allocated to building up capital, such as micro business opportunities, crop agriculture, or human capital, which brings long lasting households welfare development. By contrast, immediate consumption loans create social obligations and are associated with increased vulnerability and dependency on debt. The study analyses 4,895 households that received loans and adopts ordinary least squares (OLS) regression as the method to understand the loan type impact on three vital aspects of outcomes: regular households consumption expenditure, non-crop asset formation, and income of total household member. Another 4,740 households subsample with concentrated loan of 75% or more of their total credit is being used to investigate the borrowing behavior patterns. Indications from the analysis are that households having the maximum portion of the debt as productive will have monthly consumption (919.164 BDT/month) significantly larger, value of the asset (28,086.94 BDT) higher, and income of the households (39,276.87 BDT) more comparing to the unproductive loans holders when other parameter are under control. The findings portray that households with a major share of efficient loans contains much better monthly consumption, non-crop capital accumulation, and income of total household comparing to unproductive credit. Purpose of the loan has a vital hook in the financial outcomes, with income producing borrowing being associated with monetary resilience. There is an argument that not all loans create equal impact on welfare, the investigation sheds light on the policy debate on targeting of credit and alleviation of poverty. Such mechanisms is essential to put in place that not only promote borrowers to utilize the loan productively but also addressing the barriers in structure that leading to loan diversion and obligation