Loan Utilization & Repayment: The Role of Social Networks and Household Characteristics in Shaping Debt Repayment Behavior

Abstract

This study examines the relationship between household loan utilization and repayment performance in an emerging economy context (Uganda). Applying 2 waves of the Uganda National Household Survey (Wave 1 and Wave 2 for years 2021/2022 and 2022/23 respectively, N = 3,173 households), a static panel probit model augmented with marginal effects and correlation analysis, the study explores how loan utilization, demographic, financial, and behavioral factors shape credit repayment outcomes. Correlation and marginal effect analyses reveal that productive loan utilization significantly reduces the likelihood of loan default. Similarly, findings suggest a complex association between social networks and loan utilization. Additionally, financial inclusion and socioeconomic characteristics enhance productive loan use. Conversely, employment status, dwelling type, and worry about failure to pay debt are negatively correlated with repayment outcomes, signaling vulnerability among informal or low-income households. These findings are interpreted through the lens of Financial Capability Theory, which emphasizes the interaction of individual abilities, opportunities, and external networks in shaping financial decisions, and family financial resilience, which underscores the capacity of households to manage debt and withstand shocks. The results advance the discourse on household financial behavior by highlighting how financial capability—shaped by education, inclusion, and social context—translates into more resilience, responsible loan use and effective repayment. Among others, the study identifies a need for policymakers to integrate financial education and behavioral interventions into community-based programs to promote informed borrowing and effective loan use.