Exploration of financial stress indicators in a developing economy

• DOI: http://doi.org/10.1002/jsc.2327
• Author: Arvind Ashta,Eli Spiegelman,Angela Sutan, Utkarsh,Asheesh Pandey
• Date: 01 May 2020
• Published date: 01 May 2020

RESEARCH ARTICLE

Exploration of financial stress indicators in a developing

economy

Utkarsh

1

| Asheesh Pandey

2

| Arvind Ashta

3

| Eli Spiegelman

3

| Angela Sutan

3

1

T A Pai Management Institute, Manipal,

Karnataka, India

2

Fortune Institute of International Business,

New Delhi, India

3

CEREN (EA 7477), Burgundy School of

Business, Université Bourgogne Franche-

Comté, Dijon, France

Correspondence

Arvind Ashta, CEREN (EA 7477), Burgundy

School of Business, 29 rue Sambin, 21000

Dijon, France.

Email: arvind.ashta@bsb-education.com

Abstract

Financial stress scales need to be incorporated into the borrower selection procedure

before providing a loan. The three financial stress scales that we examined have

strong correlations, but the two involving at least eight questions are better for dis-

criminating between poor and rich. The financial stress indicator that separates male

and female students the most is whether financial problems interfere with relation-

ships with other people (interference is more for men). Older students are less satis-

fied with their financial position and seem to think that their parents worry more

about disappointing them for materialistic reasons.

1|INTRODUCTION

Marketers of financial services for banks and microcredit companies

face particular challenges. Like any marketing professionals, to

shape their strategies effectively, they need to understand the fac-

tors that may keep potential customers from buying their products.

An additional concern for financial services is their duration effect;

financial services necessarily require techniques similar to those of

relationship marketing. The relationship between client and service

provider is complicated by the fact that loan customers pay for their

service only in the future, and the consequent possibility that cus-

tomers may not pay back loans once secured. While there is a large

literature on adverse selection and moral hazard, less attention has

been given to issues in consumer psychology, nota bly the problem

of psychological fragility related to stress. Psychologists distinguish

between positive stress (“eustress”) that increases performance and

negative stress (distress) that has the opposite effect (Le Fevre,

Matheny, & Kolt, 2003). Distressed consumers of financial services

may break down, with results running from non-payment to suicide

(Ashta, Khan, & Otto, 2015; MicrofinanceFocus, 2010). These prob-

lems may be particularly acute for the poor; it has been found that

the poor suffer from reduced cognitive capacity because of

depleted self-control, resulting in poorer financial decisions (Mani,

Mullainathan, Shafir, & Zhao, 2013). Even when stress is not the

cause of these more unfortunate decisions, it may be a

consequence. Therefore, studying this subject is important given

the increasing financial inclusion of the poor by providing them

microcredit. Over 203 million people received microcredit loans in

2012, up from 68 million in 2002. Of these, more than half (116 mil-

lion) are very poor, earning less than $1.25 per day (Reed, Marsden,

Rivera, Ortega, & Rogers, 2014). It is important for the financial ser-

vices marketer to distinguish between stressed and less-stressed

borrowers and to understand the dimensions or sources of stress

they feel. While there is considerable theoretical work on

microfinance (Milana & Ashta, 2012), the causes of borrower stress

(Hannam & Ashta, 2017; Mader, 2013; Mia, 2017), and the possible

reduction of stress either by providing microequity (Estapé-

Dubreuil, Ashta, & Hédou, 2012) or by selecting the correct bor-

rowers (Bumacov, Ashta, & Singh, 2014), very little work has been

done on measuring the stress of the borrowers. This gap motivates

our study.

The availability of valid, easily administered stress scales is, there-

fore, of capital importance to the work of bankers and institutions.

The purpose of this research is to compare different stress scales to

measure financial stress. One microfinance study has estimated stress,

but used only four indicators (Field, Pande, Papp, & Park, 2012). Their

study reports that their scale has a positive but not statistically signifi-

cant correlation with poverty. Since their sample size is large

(N= 200), this positive correlation must be very weak. Our research

question is whether four questions are sufficient to produce a mean-

ingful result. We enlarge our research to see whether other existing

scales using more questions produce higher correlations with income

JEL classification codes: D18, G2, G4, I22, P46, I22.

DOI: 10.1002/jsc.2327

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