The Insurance Role of Remittances on Household Credit Demand

This paper empirically examines if the potential receipt of remittances increases household credit demand. 

The paper states that the effect of remittances and migration networks on credit demand is theoretically ambiguous. Remittances may loosen household liquidity constraints. They may also provide insurance for households, and increase their willingness to participate in productive activities and accept risky credit contract terms. 

The paper estimates credit demand as a function of household and village characteristics and variables that identify a household's potential receipt of remittances. Findings include:

• There is a positive interaction between remittances and credit demand;
• If households know they have a steady stream of remittances,  they may be more likely to accept credit contract terms;
• Households with remittances are more likely to participate in financial services;
• Job security variables positively impact credit demand.