AN EMPIRICAL ANALYSIS TO IDENTIFY THE MAJOR FACTORS AFFECTED THE HOUSEHOLD INDEBTEDNESS IN SRI LANKA (WITH SPECIAL REFERENCE TO KANDY DISTRICT)

Abstract

Households play a vital role in an economy. Over the last few years, the overall household debt portfolio in Sri Lanka has shown a sharp increase. Therefore, this study attempts to investigate the major factors associated with household indebtedness in Sri Lanka with special reference to Kandy District since it drastically affects the living condition of rural community in Sri Lanka. For this purpose, primary data was collected through structured questionnaires. All households who have obtained consumer loans in Kandy district were considered as the population while based on the quota-sampling technique, 200 households among them were selected as the sample. A quota was given for each divisional secretariat division in Kandy District and simple random sampling method was used to select the number of households from each division as a sample. The multiple regression analysis was used to assess the major determinants that associated with household indebtedness in Sri Lanka. The results show that the most influential factor that affects the household indebtedness was an intention to maintain the social status by borrowing durable and luxurious goods. Furthermore, the study found that low-income families, financially illiterate, unemployed households and women-oriented households are living at high burden of debt. Therefore, based on the empirical findings of this study, it could be recommended to formulate the policies to empower the poor to rely on their own income and make them aware of the available financial facilities with the help of community development programs.