Over-indebtedness of microfinance clients

Since 2008, MFC has studied drivers and deterrents of client over-indebtedness through annual MFI mapping studies and targeted country studies
Our work reveals worrying trends around the scale of multiple borrowing and cross-borrowing from different financial institutions. The major lessons emerging include:

Key drivers of repayment problems:

• Number of loans: clients with multiple loans are more likely delay payments
• Loan size: larger loans are more often overdue
• Repayment phase: loans closer to maturity tend to be repaid with lower discipline
• High debt load: clients relay later when their monthly repayment is a higher percentage of their monthly disposable income

Key household-level factors preventing over-indebtedness:

Emergency savings: clients who can cover unexpected costs from savings are less likely to default
Remittances income: income received from migrant family members helps to prevent over-indebtedness
MFC recommendations
We developed a set of recommendations for key groups of industry stakeholders around responsible lending practices, transparency and financial education. These recommendations are based on our research in Bosnia-Herzegovina, Kosovo and Kyrgyzstan.

Read this report in English and Russian

Learn more about our projects in:

• European Union: Measuring Over-indebtedness: Indicators, Data, Reporting
• Lebanon: Measuring Indebtedness Levels of Low-Income Borrowers
• Bosnia and Herzegovina: Indebtedness Revisited: the Level of indebtedness of MSME Credit Customers and the Quality of Finance
• Azerbaijan: Study on the risk of over-indebtedness of microcredit clients
• Kyrgyzstan: Research on indebtedness and repayment performance
• Kosovo: Study on the risk of over-indebtedness
• Bosnia and Herzegovina: Pilot study on access of low-income households to financial services
• Bosnia and Herzegovina: Follow-up study on the risk of client over-indebtedness