The Microfinance Review

Sunil Puliyakot ¹, H. K. Pradhan ²

Affiliations
1 Amrita School of Business, Coimbatore, IN
2 XLRI Xavier School of Management, Jamshedpur, IN

Abstract

Of late, there is an active debate among the practice and policy circles about the risk of indebtedness among the borrowers created by micro-lenders. This debate has come up in the light of many crises the industry has faced in the recent past in many parts of the world which are active microfinance markets. Among many causes fuelling the crisis, multiple borrowing and over-indebtedness are reported to have played an active role. In this context, this paper is an attempt to explore the role of competition in triggering multiple borrowing and over indebtedness among the borrowing population. Based on a unique primary data set collected from an active microfinance market as a part of an ongoing study, we find that there is a very high incidence of multiple source borrowing. Further, all indicators of borrower indebtedness measured as ratios of income as well as liquid assets of the borrowers were found to be positively and significantly associated with competition in the microfinance market, implying the need for strong policy interventions in regulating the market.

Keywords

Microfinance, Multiple Borrowing, Indebtedness.

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Sunil Puliyakot ¹

Affiliations
1 Rajagiri Business School, Kerala, IN

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.

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