The use of credit is an essential part of how low-income households manage to smooth their consumption in the face of “double-whammy” combinations of income and expenditure shocks. The big push for microcredit in the past decade has led to an abundance of microfinance providers and other providers that offer standardised products. This provided a deep-reaching channel of credit access. Microcredit was particularly prevalent in regions like the rural parts of the Indian state of Tamil Nadu. Even while microcredit programmes around the world have demonstrated meagre effects on household income generation, microcredit may well be the “safety valve” needed to preserve existing income and consumption levels.
This article highlights how low-income households in one district in Tamil Nadu use and manage their borrowings and repayments. It presents the cases of two households that use their access to credit extensively and adroitly to stay afloat in the face of lumpy expenditure and volatile cash flows.