The Microfinance Review

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Over-indebtedness in Microfinance: An Analysis Based on Behavioural Implications


Affiliations
1 Rajagiri Business School, Kerala, India
     

   Subscribe/Renew Journal


This paper analyses the over-indebtedness of microfinance borrowers from the point of view of one of its behavioural implications in which the borrower is forced to borrow more to meet a loan repayment commitment. The magnitude of overindebtedness is identified with the number of times a borrower has to borrow afresh to keep the loan repayment alive. Based on this measure, this paper observes that the incidence of overindebtedness is fairly widespread among the borrowers, with a representative borrower having borrowed 2.6 times on an average during a 12 months period. Our results show that adverse economic shocks, volatile incomes, borrowing for consumption and borrowing costs from microfinance institutions positively influence over-indebtedness.

Keywords

Microfinance, Over-indebtedness, Default, Repayment.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Armendariz, B and Morduch, J (2010):The Economics of Microfinance, MIT Press, London.

  • Banerjee, A V, Besley, T and Guinnane, T W (1994): “Thy Neighbour’s Keeper: The Design of a Credit Cooperative with Theory and a Test”, The Quarterly Journal of Economics, Vol. 109, No. 2, pp.491-515.

  • Banerjee, A, Duflo, E, Glennerster, R and Kinnan, C (2015): “The Miracle of Microfinance: Evidence from a Randomized Evaluation”, American Economic Journal: Applied Economics, Vol. 7, No. 1, pp.22-53.

  • Besley, T and Coate, S (1995): “Group Lending, Repayment Incentives and Social Collateral”, Journal of Development Economics, Vol. 46, No. 1, pp.1-8.

  • Betti, G, Dourmashkin, N, Rossi, M and and Yin, Y P (2007): “Consumer Over-Indebtedness in the EU: Measurement and Characteristscs”, Journal of Economic Studies, Vol. 34, No. 2, pp.136-156.

  • Chen, G, Stephen, R and Xavier, R (2010): Growth and Vulnerabilities in Microfinance, CGAP, Washington DC.

  • Dickerson, M A (2008): “Consumer Over-Indebtedness: A US Perspective”, Texas International Law Journal Research Paper Series, Vol. 43, pp.135-159.

  • Disney, R, Bridges, S and Gathergood,J (2010): “House Price Shocks and the Household Indebtedness in the United Kingdom”, Economica, Vol. 77, No. 307, pp.472-496.

  • Duvendack, M and Palmer-Jones, R (2012): “High Noon for Microfinance Impact Evaluations: Reinvestigating Evidence from Bangladesh”, Journal of Development Studies, Vol. 48, No. 12, pp.1864-1880.

  • European Commission (2008):Toward a Common Operational European Definition of Over-Indebtedness, Directorate-General for Employment, Social Affairs and Equal Opportunities, Brussels.

  • Ghatak, M (1999): “Group Lending, Local Information and Peer Selection”, Journal of Development Economics, pp.27-50.

  • Ghatak, M (2000): “Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect”,The Economic Journal, Vol. 110, pp.601-631.

  • Ghatak, M and Guinnane, T W (1999): “The Economics of Lending with Joint Liability: Theory and Practice”, Journal of Development Economics, Vol. 60, No. 1, pp.195-228.

  • Guérin, I, Morvant- Roux, S and Villarreal, M (2014): Microfinance, Debt and OverIndebtedness: Juggling with Miney, Routledge, New York.

  • Haas, O J (2006):Overindebtedness in Germany, International Labour Office, Geneva.

  • Karlan, D S and Zinman, J (2011): “List Randomization for Sensitive Behavior: An Application for Measuring Use of Loan Proceeds”, Journal of Development Economics, Vol. 98, No. 1, pp.71-75.

  • Kempson, E (2002): Over-Indetedness in Britain, Department of Trade and Industry, Great Britain.

  • Khandker, S R, Faruqee, R and Samad, H A (2014): Are Microcredit Borrowers in Bangladesh Over-indebted? Institute of Microfinance Working Paper No 26.

  • Krishnaswamy, K (2007): Competition and Multiple Borrowing in the Indian Microfinance Sector, Working Paper, Centre for Micro Finance, Institute for Financial Management and Research.

  • Mader, P (2013): “Raise and Fall of Microfinance in India: Andhra Pradesh Crisis in Perspective”, Strategic Change, Vol. 22, No. 1 - 2, pp.47-66.

  • Maurer, K and Pytkowska, J (2011): Indebyedness of Microcredit Clients in Bosnia and Herzegovina: Results from a Comprehensive Field Study, European Fund for South East Europe, Frankfurt.

  • Mohan, L, Potnis, D and Mattoo, N (2013): “A Pan-India Footprint of Over-indebtedness of Microfinance Borrowers from an Exploratory Survey”, Enterprise Development and Microfinance, Vol. 24, No. 1, pp.55-73.

  • Montgomery, R (1996): “Disciplining or Protecting the Poor? Avoiding the Social Cost of Peer Pressure in Microcredit Schemes”, Journal of International Development, Vol. 8, No. 2, pp.289-305.

  • NSSO (2014): Key Indicators of Debt and Investments in India, National Sample Survey Organization, New Delhi.

  • OXERA Consulting (2004): Are UK Households Over-Indebted? The British Bankers Association, London.

  • Pitt, M. M and Khandker, S R (1998): “The Impact of Group Based Credit Programmes on Poor Households in Bangladesh: Does the Gender of Participants Matter?”, Journal of Political Economy, Vol. 106, No. 5, pp.958-996.

  • Pytkowska, J and Spannuth, S (2011): Indebtedness of Microcredit Clients in Kosovo, European Fund for South East Europe, Frankfurt.

  • Pytkowska, J and Spannuth, S (2012): The Risk of Over-Indebtedness of Microfinance Clients in Azerbaijan, European Fund for South East Europe, Frankfurt.

  • Rahman, A (1999): “Micro-credit Initiative for Equitable and Sustainable Development: Who Pays?”, World Development, Vol. 27, No. 1, pp.67-82.

  • Roodman, D and Morduch, J (2014): “The Impact of Microcredit on the Poor in Bangladesh: Revisiting Evidence”, Journal of Development Studies, Vol. 50, No. 4, pp.583-604.

  • Rowlinson, K and Kempson, E (1994): Playing with Plastic: A Study of Credit Card Debt, Policy Studies Institute, London.

  • Schicks, J (2013): “Over-Indebtedness in Microfinance: An Empirical Investigation of Related Factors on the Borrower Level”, World Development, pp.301-324.

  • Schicks, J and Rosenberg, R (2011): Too Much Microcredit? A Survey of the Evidence on Over-Indebtedness, Occasional Paper No 19, CGAP, Washigton DC.

  • Sriram, M (2010): “Commercialisation of Microfinance in Inda: A Discussion on the Emperor’s Apparel”, Economic and Political Weekly, Vol 45, No. 24, pp.65-73.

  • Sriram, M (2012): “?The AP Microfinance Crisis 2010: Discipline or Death?: Case Analysis II”, Vikalpa: The Journal of Decision Makers, Vol. 37, No. 4, pp.136-139.

  • Statistical Service Centre (2000): Some Basic Ideas of Samplin, University of Reading, Berkshire.

  • Stiglitz, J E (1990): Peer Monitoring and Credit Markets, The World Economic Review, Vol.4, No. 3, pp.351-366.


Abstract Views: 251

PDF Views: 0




  • Over-indebtedness in Microfinance: An Analysis Based on Behavioural Implications

Abstract Views: 251  |  PDF Views: 0

Authors

Sunil Puliyakot
Rajagiri Business School, Kerala, India

Abstract


This paper analyses the over-indebtedness of microfinance borrowers from the point of view of one of its behavioural implications in which the borrower is forced to borrow more to meet a loan repayment commitment. The magnitude of overindebtedness is identified with the number of times a borrower has to borrow afresh to keep the loan repayment alive. Based on this measure, this paper observes that the incidence of overindebtedness is fairly widespread among the borrowers, with a representative borrower having borrowed 2.6 times on an average during a 12 months period. Our results show that adverse economic shocks, volatile incomes, borrowing for consumption and borrowing costs from microfinance institutions positively influence over-indebtedness.

Keywords


Microfinance, Over-indebtedness, Default, Repayment.

References