How Does a Health Insurance Program Covering 500 Million Poor Impact Credit Market Outcomes?

This article examines the impact of Pradhan Mantri Jan Arogya Yojana (PMJAY), the world’s largest publicly funded health insurance program for low-income households in India, on credit market outcomes, specifically loan delinquency. Using a difference-in-differences approach that compares border districts of states that implemented PMJAY with those that did not (due to political reasons), the study finds a significant reduction in nonperforming assets (NPAs) in implemented districts, indicating improved loan repayment. The mechanism appears to be increased liquidity for loan repayment, driven by reduced precautionary savings, lower out-of-pocket health expenditures, and decreased borrowing for medical emergencies among beneficiaries. The analysis rules out alternative explanations such as federal ruling party favoritism, pre-existing state health schemes, and concurrent cash transfer programs, and suggests that these findings may be relevant for other emerging economies with similar health insurance and credit market conditions.