Microcredit and Overindebtedness

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The microfinance crises in Bolivia and Andra Pradesh (India) among others, which have been characterized by overindebted borrowers and soaring delinquency rates, have revealed the potential downside risks of microfinance. Research on overindebtedness among microcredit clients is scant, however, and important research questions remain: How best to measure overindebtedness? What is the extent of the problem? Which behavioural characteristics or loan features are associated with the risk of overindebtedness? What policies could address the problem?

In a collaborative project together with the German Development Bank (KfW Entwicklungsbank), this research investigates overindebtedness at the household level, drawing on (a) primary household survey data collected in urban Uganda and (b) repayment data from a Ugandan microfinance institution. Supply-side (delinquency showing up in a bank’s balance sheets) and demand-side (debt-income ratio’s and more subjective indicators of customer distress events) measures appear to be only moderately correlated.

Contacts: Joeri SmitsIsabel Günther

Partners: Independent Evaluation Unit of the KfW Development BankUniversity of St. Gallen

Funding: Independent Evaluation Unit of the KfW Development Bank

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Thu Jul 27 10:31:57 CEST 2017
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