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Determinants of overindebtedness among microfinance borrowers: a poverty line-based approach

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  • Sunil Puliyakot

    () (Associate Professor, Rajagiri Business School, Rajagiri Valley, Kochi, Kerala, India)

Abstract

Borrower overindebtedness is a serious issue faced by the microfinance industry globally. In that regard, the purpose of the present article is to identify the extent and determinants of borrower overindebtedness among microfinance borrowers. For this study, the concept of overindebtedness is approached with the help of a scientifically estimated poverty line level of income by a government agency, and then the results are compared with the World Bank recommended poverty line of $1.90 per capita per day. A quantitative methodology is followed using a survey design covering 210 borrowing households in two districts from the state of Tamil Nadu in India. The findings of the study indicate that approximately 57 per cent of the sample respondents are overindebted. Results of the binomial logistic regression show that adverse economic shocks, low household income, number of credit arrangements contracted by the household and quantum of borrowing from informal sources increase the likelihood of a household being overindebted. Comparison with the World Bank recommended poverty line shows large similarities. Accordingly, the study points to the need to prioritize income generation schemes rather than credit distribution schemes as an instrument of social policy.

Suggested Citation

  • Sunil Puliyakot, 2020. "Determinants of overindebtedness among microfinance borrowers: a poverty line-based approach," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 27(1), pages 20-41, June.
  • Handle: RePEc:unt:japsdj:v:27:y:2020:i:1:p:20-41
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    References listed on IDEAS

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    More about this item

    Keywords

    microfinance; micro credit; overindebtedness; poverty line;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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