HKUST IEMS Thought Leadership Briefs No. 45
Many migrant domestic workers (MDWs) in Hong Kong appear to finance foreseen expenditures through high-interest loans rather than through savings, thereby incurring a sizable cost. MDWs who are financially literate are just as likely to borrow as those who are not; those with savings accounts appear more likely to borrow than those without. Borrowing to pay for important expenses is attractive because it provides discipline: the severe penalties for default ensure that the migrant repays the loan rather than spending on “unnecessary” expenses, and help her resist demands from her kin. Well-designed savings commitment products or ”repay-and-save” type loan products can help migrants build their assets and improve their welfare.
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