Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths

Jessica Schicks

No 10-048, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: The microfinance industry has been celebrated both for its social impact on poverty alleviation and for its profitability. With issues of over-indebtedness emerging among microfinance customers, both achievements are at risk. This paper contributes to the industry's understanding of the definition and causes of over-indebtedness. It reveals why the 5 myths of microfinance over-indebtedness erroneously oversimplify the reality of microfinance customers. The paper works with theoretical and empirical contributions from economics, psychology and sociology, and unites microfinance specific findings with the general consumer finance literature. In addition to external influences, it highlights the responsibility of lenders in driving microfinance customers into over-indebtedness. It also recognises the role that borrowers involuntarily play in over-indebting themselves. Enhancing our understanding of what microfinance over-indebtedness is and how it is caused, the paper provides the basis for tailoring over-indebtedness solutions to the root causes of the phenomenon and addressing the challenge at all suitable levels. Latest version (June 2011) :http://www.solvay.edu/sites/upload/files/CEB_WorkingPapers/LastUpdate/wp10048.pdf

Keywords: Microfinance; Microcredit; Over-Indebtedness; Debt; Customer Protection; Consumer Finance; Behavioural Economics (search for similar items in EconPapers)
JEL-codes: G21 O16 O50 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2010-09
New Economics Papers: this item is included in nep-cwa, nep-dev and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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