**Figure 6:** Debt Relief and Borrower Expectations

<!-- Start of picture text --> Beliefs about self Beliefs about average borrower<br>1[More likely to repay] 22.9% 10.9% 66.2% 1[More likely to repay] 24.8% 11.6% 63.5%<br>1[More likely to apply] 25.0% 11.7% 63.3% 1[More likely to apply] 24.2% 11.0% 64.7%<br>1[Loan approval more likely] 24.6% 17.2% 58.2% 1[Loan approval more likely] 23.0% 15.2% 61.8%<br>1[Future relief more likely] 29.9% 10.7% 59.4% 1[Future relief more likely] 30.1% 10.0% 59.9%<br>Proportion Proportion<br>Less likely No change More likely Less likely No change More likely<br><!-- End of picture text --> _Note:_ The figure summarizes responses to the debt relief survey administered to 1,630 microfinance and bank borrowers with recent exposure to debt relief. Respondents were randomly assigned to answer questions about themselves ( _N_ =813) or the average borrower ( _N_ =817).

impact on their own loan repayment, while 66% believe that debt relief will _improve_ their future loan repayment. Interestingly, the responses are not very different when borrowers are asked whether they expect debt relief to worsen credit discipline in the population. Only 25% of respondents expect the loan repayment of the average borrower to suffer as a result of debt relief, while 64% believe that the average borrower will in fact be more likely to repay their loans. However, in line with the widespread concern that debt relief may generate expectations of future relief, 59% of respondents are more likely to expect debt relief in the future, and 60% believe that debt relief has also made the average borrower more likely to expect further debt relief in the future.

The belief that borrowers will, on average, be more likely to repay their loans after debt relief contradicts the predictions of a simple model of debt relief where heightened expectations of relief would, all else equal, lead to a lower probability of repayment. It is also contrary to evidence showing severe moral hazard in the aftermath of debt forgiveness programs (see Giné and Kanz, 2018). The expectation that debt relief improves loan repayment could be consistent with a model like ours if borrowers expect debt relief to alleviate liquidity constraints and improve borrowers’ ability to repay without changing expectations about the leniency of credit enforcement or the availability of debt relief in the future. However, answering that debt relief will improve loan repayment could also be consistent with strategic responses if, for instance, borrowers understand that moral hazard will limit access to future credit or debt relief. In the case of debt forbearance, the responses we observe are also consistent with the view that temporary repayment flexibility effectively addresses liquidity constraints without imposing significant costs on creditors.

Borrowers in our sample also believe that debt relief will affect credit demand and access to credit. The majority of respondents expect that debt relief will increase their own likelihood of applying for a loan (63%) as well the likelihood that the average borrower will apply for a new loan (65%). Interestingly, the majority of respondents also believe that debt relief will _improve_ their own chances 23