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