MFC has been involved in studying the issue of the indebtedness level of microcredit clients since 2008 through the annual mapping study of microfinance institutions and through projects commissioned by EFSE Development Facility and ICCO.
The results of the studies conducted inthree ECA countries: Bosnia-Herzegovina and Kosovo (for EFSE) and in Kyrgyzstan (for ICCO) show a considerable scale of multiple borrowing and cross-borrowing from different types of institutions.
The studies allowed to identify several common factors associated with repayment problems and prevention of over-indebtedness.
Borrowing patterns
| Multiple borrowing | Repayment | ||||
| % borrowers with multiple loans | Avg. number of loans | Cross-borrowing from banks and MFIs (among multiple borrowers) | Average loan term (months) | % borrowers overdue >30 days | |
| BiH | 58% | 2.30 | 66% | 37 | 15.8% |
| Kosovo | 25% | 1.37 | 53% | 26 | 8.4% |
| Kyrgyzstan | 31% | 1.46 | 32% | 14 | 1.3% |
Drivers of repayment delays
- number of loans – repayment problems are more often seen among clients with multiple loans
- loan size – larger loans are more often overdue
- repayment phase – loans closer to maturity are repaid with lower discipline
- debt load – clients with higher indebtedness index (monthly repayment to disposable income) repay less timely
Household-level factors preventing over-indebtedness
- availability of savings for rainy days - people who have an emergency fund for unexpected exenditures less often default on repayments
- income from remittances - people who were financially supported by migrant family members less often were over-indebted or felt burdened with debts
Preventing Over-Indebtedness – MFC recommendations
We would like to provide you with a few recommendations - in English and Russian - regarding prevention of over-indebtedness of your clients. These recommendations are based on the research that the MFC has conducted for EFSE and ICCO in the recent years in Bosnia-Herzegovina, Kosovo and Kyrgyzstan.
Files:
Research studies conducted by MFC:
Bosnia and Herzegovina
- At the end of 2008 Microfinance Centre (MFC) implemented a pilot study commissioned by EFSE Development Facility to examine the application of customer protection principles, the level of access to financial services and the risk of over-indebtedness among low-income clients in Bosnia Herzegovina.
The research project „Access of low-income households to financial services in Bosnia and Herzegovina. A pilot study” aimed at probing the relevance of the issue on a smaller scale and pre-testing a methodology to be applied potentially in a larger roll-out study.
The findings confirmed a high level of indebtedness and, in certain client segments, cross-borrowing and potential risk of over-indebtedness. The study found the interest in and use of financial services other than credit to be rather low among the survey participants, while pointing at a worryingly weak savings culture.
More information:
http://www.efse.lu/likecms.php?site=site.html&nav=78&siteid=78&entryid=0&sp=0
- In 2009, the EFSE Development Facility commissioned Microfinance Centre (MFC) to conduct a study to analyze the situation of indebtedness of microcredit clients in Bosnia and Herzegovina which has been the leading microfinance market in Central and Eastern Europe.
The results of the study confirm that a sizeable proportion of microcredit borrowers in Bosnia and Herzegovina experience difficult financial situations and have problems with the repayment of their liabilities.
More information:
http://www.efse.lu/likecms.php?site=site.html&nav=77&siteid=163&entryid=0&sp=0
Summary paper: “Indebtedness of Microcredit Clients in Bosnia and Herzegovina. Results from a Comprehensive Field Study”. Klaus Maurer, European Fund for Southeast Europe (EFSE), Justyna Pytkowska, Microfinance Centre (MFC) for CEE and NIS
http://www.mfc.org.pl/sites/mfc.org.pl/files/Indebtedness BiH_Summary Paper ENG.pdf
Kosovo
In 2010 another study was commissioned by EFSE Development Facility to analyse whether there is a problem of (over-)indebtedness among microcredit clients in Kosovo. This initiative was endorsed and supported by the Central Bank of Kosovo (CBK) and the Credit Registry of Kosovo (CRK).
The objectives of the study were (i) to gain an understanding of the level of indebtedness and underlying borrowing patterns of microcredit clients, (ii) to identify factors on both the demand and supply side which led to or prevented overindebtedness, and (iii) to provide recommendations on how to prevent overindebtedness. The study comprised 3 phases: (i) analysis of the credit bureau data, (ii) bank/MCO survey, (iii) microcredit client survey.
Summary paper: „Indebtedness of Microcredit Clients in Kosovo. Results from a Comprehensive Field Study”. Justyna Pytkowska, Microfinance Centre (MFC), Sylvia Spannuth, Finance in Motion.
http://www.mfc.org.pl/sites/mfc.org.pl/files/Indebtedness%20Study%20Kosovo_Summary%20Paper_ENG.pdf
http://www.mfc.org.pl/sites/mfc.org.pl/files/Indebtedness%20Study%20Kosovo_Summary%20Paper_RUS.pdf
Kyrgyzstan
Within the ICCO-funded project MFc conducted the analysis of data available from the CIB "Ishenim" credit bueau. CIB "Ishenim" manages the exchange of borrower information about 50 financia institutions - banks and MFIs - major providers of credit in Kyrgyzstan. The analysis was conducted in November - December 2011 and aimed at (i) measuring the level of debt use in the population, (ii) understand the patterns of credit use, (iii) identify credit use characteristics and demographic features of borrowers with repayment problems, (iv) identify factors considered by financial institutions to affect the degree of indebtedness.
Final report "Research on the Level of Indebtedness and Repayment Performance of Individual Borrowers in Kyrgyzstan", MFC-ICCO, December 2011
http://www.mfc.org.pl/sites/mfc.org.pl/files/Indebtedness%20report%20Kyrgyzstan_ENG.pdf
http://www.mfc.org.pl/sites/mfc.org.pl/files/Indebtedness%20report%20Kyrgyzstan_RUS.pdf
Azerbaijan
In 2011 MFC won the tender for another study funded EFSE Development facility: „The risk of over-indebtedness of microcredit clients in Azerbaijan“. The study is conducted through a survey of a sample of microcredit clients (demand-side survey) and bank/MCO survey (supply-side survey).
