Microcredit, Debt, and Mental Health: Causal Pathways, Empirical Evidence, and Implications for Responsible Microfinance

Kakungulu Samuel J.

Faculty of Education, Kampala International University, Uganda

                                                                                      ABSTRACT
Microcredit has long been promoted as a development strategy for poverty reduction, financial inclusion, and women’s economic empowerment. However, growing evidence suggests that while access to credit may improve economic opportunities, it can also expose borrowers to financial stress, indebtedness, and adverse mental health outcomes. This paper examines the causal relationship between microcredit, debt, and mental health by reviewing theoretical perspectives, empirical evidence, and the mechanisms through which debt influences psychological well-being. It explores how repayment obligations, financial strain, household dynamics, gender roles, social stigma, identity, and coping behaviors mediate the relationship between indebtedness and mental health. The review synthesizes findings from experimental, quasi-experimental, and observational studies, highlighting the heterogeneous effects of microcredit across different socioeconomic and institutional contexts. While some studies demonstrate that microcredit improves subjective well-being through enhanced financial inclusion, empowerment, and social capital, others reveal increased anxiety, depression, stress, and psychological distress associated with excessive debt burdens and repayment pressures. The paper further discusses methodological challenges in establishing causality, including selection bias, spillover effects, and the measurement of mental health outcomes in low- and middle-income countries. It concludes that the mental health consequences of microcredit depend largely on program design, borrower characteristics, debt management practices, and broader institutional environments. Integrating financial counseling, debt management support, borrower protection mechanisms, and accessible mental health services into microfinance programs can maximize the developmental benefits of microcredit while minimizing its psychological risks. Future research should continue to examine context-specific causal pathways and develop evidence-based interventions that promote both financial resilience and mental well-being.

Keywords: Microcredit, Debt Burden, Mental Health, Financial Strain, Financial Inclusion.

CITE AS: Kakungulu Samuel J. (2026). Microcredit, Debt, and Mental Health: Causal Pathways, Empirical Evidence, and Implications for Responsible Microfinance. IDOSR JOURNAL OF ARTS AND MANAGEMENT 11(2):146-152.
https:/doi.org/10.59298/IDOSRJAM/2026/112.146152