Over-indebtedness and investment in microfinance
Microfinance rating agency MicroRate and Microfinance Information Exchange (MIX) have today co-published a study ‘The Tipping Point: Over-indebtedness and investment in microfinance’, which examines whether investments contributed to recent microfinance repayment crises, and whether measures of investment activity might serve as early warning signals for future microfinance crises.
The study which is a part of the MicroBanking Bulletin series claims that while ambitious microfinance institution (MFI) outreach goals are commendable, overly zealous loan origination practices can lead to less rigorous credit standards and destructive, unintended consequences.
While the best deterrent to over-indebtedness will come from improved credit reporting systems at the individual and institutional level, the data presented in this study suggests that early warnings for these problems can be found by tracking the supply of credit to MFIs.
