IDEAS home Printed from https://ideas.repec.org/p/sol/wpaper/2013-112507.html
   My bibliography  Save this paper

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

Author

Listed:
  • Jessica Schicks

Abstract

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.

Suggested Citation

  • Jessica Schicks, 2012. "The sacrifices of microborrowers in Ghana – A customer-protection perspective on measuring over-indebtedness," Working Papers CEB 12-008, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/112507
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/112507/1/wp12008.pdf
    File Function: wp12008
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    3. 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.
    4. 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.
    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. 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.
    8. Isabelle Agier & Ariane Szafarz, 2013. "Subjectivity in credit allocation to micro-entrepreneurs: evidence from Brazil," Small Business Economics, Springer, vol. 41(1), pages 263-275, June.
    9. Rahman, Aminur, 1999. "Micro-credit initiatives for equitable and sustainable development: Who pays?," World Development, Elsevier, vol. 27(1), pages 67-82, January.
    10. Rinaldi, Laura & Sanchis-Arellano, Alicia, 2006. "Household debt sustainability: what explains household non-performing loans? An empirical analysis," Working Paper Series 570, European Central Bank.
    11. Daryl Collins, 2008. "Debt and household finance: evidence from the Financial Diaries," Development Southern Africa, Taylor & Francis Journals, vol. 25(4), pages 469-479.
    12. 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.
    13. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Over-indebtedness in Microfinance – Who Should Bear the Risk?
      by Jessica Schicks in CGAP Microfinance Blog on 2012-06-11 18:17:02

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luminita Postelnicu & Niels Hermes & Roselia Servin Juarez, 2015. "Social Capital and the Repayment of Microfinance Group Lending. A Case Study of Pro Mujer Mexico," Working Papers CEB 15-023, ULB -- Universite Libre de Bruxelles.
    2. Luminita Postelnicu & Niels Hermes & Ariane Szafarz, 2013. "Defining Social Collateral in Microfinance Group Lending," Working Papers CEB 13-050, ULB -- Universite Libre de Bruxelles.
    3. Marc Labie & Carolina Laureti & Ariane Szafarz, 2013. "Flexible Products in Microfinance: Overcoming the Demand-Supply Mismatch," Working Papers CEB 13-044, ULB -- Universite Libre de Bruxelles.
    4. Barry, Thierno Amadou & Tacneng, Ruth, 2014. "The Impact of Governance and Institutional Quality on MFI Outreach and Financial Performance in Sub-Saharan Africa," World Development, Elsevier, vol. 58(C), pages 1-20.
    5. repec:eee:joreco:v:23:y:2015:i:c:p:39-48 is not listed on IDEAS
    6. Weber, Ron & Musshoff, Oliver, 2012. "Microfinance for agricultural firms - What can we learn from bank data?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126708, International Association of Agricultural Economists.

    More about this item

    Keywords

    Microfinance; Microcredit; Over-Indebtedness; Debt; Customer Protection; Sacrifices;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sol:wpaper:2013/112507. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benoit Pauwels). General contact details of provider: http://edirc.repec.org/data/cebulbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.