Household debt distribution,informal income,and macroprudential policy in a developing country: Evidence from Kazakhstan

Abstract

In this paper, we investigate household indebtedness in the lower half of the income distribution and examine the role of informal income, which is relevant for the design of macroprudential policy in developing economies. We identify five key patterns of household debt burden across the income distribution. First, lower-income deciles often exhibit a substantial gap relative to the national median. Nevertheless, most loans in the lower half of the income distribution are well serviced. This suggests that individuals at the bottom can manage their debt because a portion of their income is unreported, reflecting a reliance on informal employment and income. Comparing debt burden with loan performance thus provides a useful means to detect and potentially estimate the share of informal wages in the economy. Third, since informality makes it difficult to verify income, households in the lower deciles often carry relatively larger formal debt burdens, implying that macroprudential tightening may disproportionately affect these vulnerable groups. Fourth, we find that lower-income households rely heavily on credit from non-bank financial institutions. Finally, a higher share of non-performing loans across income groups originates from the non-bank sector. Taken together, these findings highlight critical considerations for designing effective macroprudential policy in economies with sizable informal sectors.