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From a supply gap to a demand gap? The risk and consequences of over-indebting the underbanked

Jessica Schicks

No 11-046, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: In the past, the microfinance industry focused mainly on growth and outreach. Addressing financial exclusion implied a huge supply gap. Recent over-indebtedness crises in several countries have shown that this gap can turn into over-supply. The industry urgently requires research to understand the magnitude and consequences of this shift. This chapter reveals the broad spectrum of consequences over-indebtedness can have on borrowers and other stakeholders, mainly MFIs. It emphasizes that over-indebtedness consequences reach far beyond the risk management concerns that MFIs and investors have on top of their mind. In a second step the chapter reviews the existing empirical research on microfinance over-indebtedness and examines how prevalent over-indebtedness is in microfinance markets today. It highlights the evidence for over-indebtedness in crisis markets and non-crisis markets, especially when markets mature. Only if the extent of the problem is known and its effects are properly understood, can the microfinance industry develop appropriate measures against over-indebtedness and adapt to the challenge of oversupply.

Keywords: Microfinance; Microcredit; Supply Gap; Demand Gap; Over-Indebtedness; Customer Protection (search for similar items in EconPapers)
JEL-codes: G21 O16 O50 (search for similar items in EconPapers)
Pages: 24 p.
Date: 2011-10
New Economics Papers: this item is included in nep-ban, nep-cis and nep-mfd
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Chapter: From a Supply Gap to a Demand Gap? The Risk and Consequences of Over-indebting the Underbanked (2013)
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