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Bibliothèque Are Microcredit Borrowers in Bangladesh Over-indebted ?

Are Microcredit Borrowers in Bangladesh Over-indebted ?

Are Microcredit Borrowers in Bangladesh Over-indebted ?

Resource information

Date of publication
Octobre 2013
Resource Language
ISBN / Resource ID

Microcredit programs in Bangladesh have
experienced spectacular growth in recent years, with a
growing number of borrowers availing credit from multiple
microcredit agencies. There is a growing concern that if
there are not sufficient returns to borrowing from
microfinance institutions (MFIS), some borrowers might be
taking loans that they will not be able to repay. A
household may be considered over-indebted, for example, if
its debt liability exceeds 40 percent of its income or
assets. Using a long panel of household survey data from
Bangladesh, the paper finds that some 26 percent of
microcredit borrowers are over-indebted on this measure
versus 22 percent of non-microcredit borrowers. Econometric
analysis suggests that both MFI competition and multiple
borrowing raise indebtedness. However, repeated borrowing,
while it affects short-term liability adversely, does affect
the long-term debt-asset ratio favorably. That is, repeated
borrowing helps increase assets more than debt over time.
Microcredit borrowers in Bangladesh are thus not necessarily
over-indebted. But when borrowing is seen as protection
against shocks such as floods even at the cost of being
indebted, MFIs may offer micro-insurance schemes to
safeguard borrowers against economic shocks.

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Authors and Publishers

Author(s), editor(s), contributor(s)

Khandker, Shahidur R.
Faruqee, Rashid
Samad, Hussain A.

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