Are microcredit borrowers in Bangladesh over-indebted ?
AbstractMicrocredit programs in Bangladesh have experienced spectacular growth in recent years, with a growing number of borrowers availing credit from multiple microcredit agencies. There is a growing concern that if there are not sufficient returns to borrowing from microfinance institutions (MFIS), some borrowers might be taking loans that they will not be able to repay. A household may be considered over-indebted, for example, if its debt liability exceeds 40 percent of its income or assets. Using a long panel of household survey data from Bangladesh, the paper finds that some 26 percent of microcredit borrowers are over-indebted on this measure versus 22 percent of non-microcredit borrowers. Econometric analysis suggests that both MFI competition and multiple borrowing raise indebtedness. However, repeated borrowing, while it affects short-term liability adversely, does affect the long-term debt-asset ratio favorably. That is, repeated borrowing helps increase assets more than debt over time. Microcredit borrowers in Bangladesh are thus not necessarily over-indebted. But when borrowing is seen as protection against shocks such as floods even at the cost of being indebted, MFIs may offer micro-insurance schemes to safeguard borrowers against economic shocks.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6574.
Date of creation: 01 Aug 2013
Date of revision:
Debt Markets; Bankruptcy and Resolution of Financial Distress; Currencies and Exchange Rates; Banks&Banking Reform; Emerging Markets;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-23 (All new papers)
- NEP-BAN-2013-08-23 (Banking)
- NEP-DEV-2013-08-23 (Development)
- NEP-MFD-2013-08-23 (Microfinance)
- NEP-NPS-2013-08-23 (Nonprofit & Public Sector)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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