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The sacrifices of microborrowers in Ghana – A customer-protection perspective on measuring over-indebtedness

  • Jessica Schicks

This paper measures the over-indebtedness of microborrowers in Ghana. It defines over-indebtedness from a customer-protection perspective, considering borrowers over-indebted if they continuously struggle with repayment and experience unacceptable sacrifices related to their debt. We find that 30% of borrowers in our urban African population of microborrowers are over-indebted. The paper provides a detailed analysis of the sacrifices borrowers experience. In a second step, it tests the risk-management indicators of debt problems as predictors of the customer-protection measurement of over-indebtedness. Over-indebtedness is strongly related to delinquency and to the debt-to-income ratio but not to total debt amounts or to multiple borrowing. We construct a model that correctly predicts 72.6% of cases. However, even the best indicators for over-indebtedness identify only a small portion of cases of over-indebtedness. To protect customers from unacceptable struggles, the industry needs to measure customer experiences directly. Sound risk management is not enough to protect customers against over-indebtedness.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 12-008.

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Length: 37 p.
Date of creation: Mar 2012
Date of revision:
Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/112507
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  1. Ulrike Vogelgesang, 2001. "Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior," GK working paper series 2001-06, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Nov 2001.
  2. Marc Labie, 2007. "Réflexions préliminaires pour une approche éthique de la gestion des organisations en microfinance," ULB Institutional Repository 2013/14271, ULB -- Universite Libre de Bruxelles.
  3. Karlan, Dean S. & Zinman, Jonathan, 2007. "Expanding Credit Access: Using Randomized Supply Decisions To Estimate the Impacts," CEPR Discussion Papers 6180, C.E.P.R. Discussion Papers.
  4. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
  5. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Working Papers 0512, Banco de España;Working Papers Homepage.
  6. Godquin, Marie, 2004. "Microfinance Repayment Performance in Bangladesh: How to Improve the Allocation of Loans by MFIs," World Development, Elsevier, vol. 32(11), pages 1909-1926, November.
  7. Isabelle Agier & Ariane Szafarz, 2013. "Subjectivity in Credit Allocation to Micro-Entrepreneurs: Evidence from Brazil," ULB Institutional Repository 2013/148889, ULB -- Universite Libre de Bruxelles.
  8. Rinaldi, Laura & Sanchis-Arellano, Alicia, 2006. "Household debt sustainability: what explains household non-performing loans? An empirical analysis," Working Paper Series 0570, European Central Bank.
  9. Sharma, Manohar & Zeller, Manfred, 1997. "Repayment performance in group-based credit programs in Bangladesh: An empirical analysis," World Development, Elsevier, vol. 25(10), pages 1731-1742, October.
  10. Sarah Bridges & Richard Disney, 2004. "Use of credit and arrears on debt among low-income families in the United Kingdom," Fiscal Studies, Institute for Fiscal Studies, vol. 25(1), pages 1-25, March.
  11. Brown, Sarah & Taylor, Karl & Wheatley Price, Stephen, 2005. "Debt and distress: Evaluating the psychological cost of credit," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 642-663, October.
  12. Daryl Collins, 2008. "Debt and household finance: evidence from the Financial Diaries," Development Southern Africa, Taylor & Francis Journals, vol. 25(4), pages 469-479.
  13. Gianni Betti & Neil Dourmashkin & Mariacristina Rossi & Ya Ping Yin, 2007. "Consumer over-indebtedness in the EU: measurement and characteristics," Journal of Economic Studies, Emerald Group Publishing, vol. 34(2), pages 136-156, May.
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