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Does Microcredit Create Over-indebtedness?

  • Sk. Mahmudul Alam, Mahmud
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    In the context of the present crisis of microfinance, it is quite common to use the term over-indebtedness among the poor. Coming up with a precise definition of over-indebtedness for research or regulatory purposes is surprisingly a complex challenge. Few of researchers took attempt to define and measure over-indebtedness among microfinance borrowers. Among them Maurer and Pytkowska (2010); Spannuth & Pytkowska (2011) and Schicks (2011) are notable. But their definition and measurement process of over-indebtedness are not unique. Maurer and Pytkowska showed that by taking microcredit, 17% borrowers are over-indebted and 11% borrowers are at risk of becoming over-indebted in Bosnia and Herzegovina. Spannuth & Pytkowska demonstrated that 7% borrowers are insolvent, 4% borrowers are in critical position and 14% are at risk of becoming over-indebted in Kosovo. Schicks displayed that 30% borrowers are over-indebted in Ghana. The endeavor of this paper is to show the real fact whether microcredit creates over-indebtedness among its borrowers or not.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39124.

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    Date of creation: 30 May 2012
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    Handle: RePEc:pra:mprapa:39124
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    1. Vogelgesang, Ulrike, 2003. "Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior," World Development, Elsevier, vol. 31(12), pages 2085-2114, December.
    2. Jessica Schicks, 2010. "Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths," Working Papers CEB 10-048, ULB -- Universite Libre de Bruxelles.
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