Estimating the human costs of debtor prisons in Egypt

In Egypt, between 30,000 and 50,000 individuals are currently imprisoned due to unpaid debts (Ministry of Social Solidarity). Despite governmental initiatives such as the “Prisons without debtors” presidential initiative, imprisonment for small debt amounts remains widespread and disproportionately affects low-income individuals. The rationale behind debtor prisons is to discourage defaulting, but this punitive mechanism can lead to long-term societal harm.

Imprisoning debtors can perpetuate cycles of poverty, as those detained frequently struggle to find employment upon release and face difficulties reintegrating socially and economically. Families of imprisoned debtors also experience hardship, including disrupted education for their children, heightened food insecurity, and greater psychological distress. Meanwhile, financial institutions worry that abolishing debtor prisons could lead to a substantial rise in loan and undermine the stability of the credit system.

In partnership with the Ministry of Social Justice, Al-Masry pays off the debts of individuals facing criminal charges or already incarcerated for default, thereby relieving their sentences and enabling them to remain socially and economically active. The programme targets debtors with debts below 20,000 EGP (≈ EUR 370), based on economic vulnerability and the nature of the debt, excluding non-essential liabilities such as gambling.

The evaluation will examine the effects of paying off the debts of individuals facing criminal charges or already incarcerated for default on employment, health, family well-being, and the risk of returning to debt or incarceration.

In addition, to capture broader market effects, J-PAL MENA will partner with a microfinance institution to test how removing the threat of imprisonment influences borrowing and repayment behaviour, by randomising whether borrowers are informed that default will not lead to criminal charges but will instead be reported to the credit bureau.

This phase of the project is expected to generate essential data to inform financial and judicial policy decisions in Egypt. Anticipated outcomes include:

1. Estimations of the social cost of debtor prison, including effects on employment, family welfare, and health
2. Evidence of which population benefits most from debt relief across different legal stages
3. Insights into credit market behavior when imprisonment deterrents are removed
4. Policy-relevant evidence to guide reform, including:

• Strengthening the role of credit bureaus.
• Understanding the total cost of debtor prison laws, including their social costs.

5. Exploring the use of targeted cash transfers as a means to mitigate criminal justice impacts for debtors.