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Addiction to Microcredit: An Obstacle to Social and Financial Mobility


  • Peprah, James Atta
  • Koomson, Isaac


Contrary to the confidence in the ability of microfinance to uplift the poor on the social structure so that upon reaching a higher echelon, the poor (clients) will be able to save and borrow from formal financial institutions (FFIs), most of the poor and socially vulnerable have now become addicted to micro-credit due to demand and supply-side factors. What could be the possible causes of this micro-credit addiction? The objective of this paper was to unravel the causes of what we call “microcredit addiction” and provide recommendations that will enable the addicted clients to break away from this craving. The paper reviews literature on social and financial impact of microfinance and finds that failure of microfinance in the delivery of its core mandate of poverty reduction results in clients’ addiction to micro-credit and, eventually, inhibits their social and financial mobility. The upscaling intentions of MFIs, compulsory savings, high interest rates and transactions costs, multiple borrowing, client’s inability to save for the future and, surprisingly, clients’ satisfaction with MFIs’ products and services are among the factors that make clients get addicted to micro-credit.

Suggested Citation

  • Peprah, James Atta & Koomson, Isaac, 2014. "Addiction to Microcredit: An Obstacle to Social and Financial Mobility," MPRA Paper 57894, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:57894

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    References listed on IDEAS

    1. Joseph Kimos Adjei & Thankom Arun & Farhad Hossain, 2009. "The Role of Microfinance in Asset-Building and Poverty Reduction: The Case of Sinapi Aba Trust of Ghana," Brooks World Poverty Institute Working Paper Series 8709, BWPI, The University of Manchester.
    2. Carmen Velasco & Reynaldo Marconi, 2004. "Group dynamics, gender and microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(3), pages 519-528.
    3. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
    4. Beatriz Armendáriz & Jonathan Morduch, 2010. "The Economics of Microfinance, Second Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262014106, January.
    5. Fabio Veras Soares & Rafael Perez Ribas & Guilherme Issamu Hirata, 2008. "Achievements and Shortfalls of Conditional Cash Transfers: Impact Evaluation of Paraguay?s Tekoporã Programme," Publications 3, International Policy Centre for Inclusive Growth.
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    More about this item


    addiction; microfinance; financial mobility; over-indebtedness;

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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