Are Microcredit Borrowers in Bangladesh Over-indebted ?

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 bo...

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Bibliographic Details
Main Authors:	Khandker, Shahidur R., Faruqee, Rashid, Samad, Hussain A.
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACCESS TO CREDIT ADVERSE EFFECT ADVERSE SHOCKS AGRICULTURAL BANKS AGRICULTURAL DEVELOPMENT BANKS ARREARS ASSET RATIO ASSET VALUES BANK OF ENGLAND BANK POLICY BANKRUPT BIDS BORROWER BUFFER COMMERCIAL BANK COMMERCIAL BANKS CONSUMER CREDIT CONSUMER GOODS CONSUMER PROTECTION CONSUMPTION SMOOTHING CONTROL VARIABLES CREDIBILITY CREDIT BUREAUS CREDIT CONSTRAINT CREDIT CONSTRAINTS CREDIT LIMIT CREDIT LIMITS CREDIT MARKETS CREDIT PROGRAMS CREDIT RISKS CREDITWORTHINESS DEBT DEBT CONTRACTS DEBT LIABILITY DEBT PAYMENT DEBT PROBLEMS DEBT RATIOS DEBT SERVICE DEBT SERVICING DEBT SERVICING COSTS DEBTS DEFAULT CASES DEFAULTS DEMAND FOR CREDIT DEMAND-SIDE FACTORS DEPENDENCY RATIO DEPENDENT DEPENDENT VARIABLE DEPENDENTS DEPOSITS DEPRESSIONS DESCRIPTIVE STATISTICS DEVELOPING COUNTRIES DISBURSEMENT DISBURSEMENTS ECONOMIC CRISIS ECONOMIC SHOCKS ENTREPRENEURSHIP ENVIRONMENTAL FACTORS EXPENDITURES EXPLANATORY VARIABLES EXPOSURE EXTERNAL FACTORS FEDERAL RESERVE FINANCIAL DISTRESS FINANCIAL INSTITUTIONS FINANCIAL SERVICES FIXED EFFECTS FOREIGN CURRENCY FOREIGN CURRENCY MARKETS GOVERNMENT POLICIES HOLDING HOUSEHOLD DEBT HOUSEHOLD DEBTS HOUSEHOLD INCOME INCIDENCE OF INDEBTEDNESS INCOME GENERATION INCOME-GENERATING ACTIVITIES INCOMES INDEBTED INDEBTED HOUSEHOLDS INDEBTEDNESS INDIVIDUAL ACCOUNTS INFORMAL LOANS INSOLVENCY INSOLVENT INSTITUTIONAL ENVIRONMENT INSTRUMENT INTEREST RATE INTEREST RATES INTERNATIONAL BANK INVESTMENT OPPORTUNITY IRRESPONSIBLE BORROWING JUDGMENT JUDICIAL EFFICIENCY LAND ASSET LAND ASSETS LEGAL ENVIRONMENT LENDER LENDERS LEVEL OF INDEBTEDNESS LEVEL OF REPAYMENT LIABILITY LIQUIDITY LIQUIDITY PROBLEMS LOAN LOAN AGREEMENTS LOAN AMOUNT LOAN APPROVALS LOAN CONTRACTS LOAN MATURITY LOAN PAYMENT LOAN PORTFOLIO LOAN PORTFOLIOS LONG-TERM BORROWING LONG-TERM DEBT MARKET INFORMATION MATURITIES MICRO CREDIT MICRO-CREDIT MICRO-INSURANCE MICROCREDIT MICROFINANCE MICROFINANCE INSTITUTION MICROFINANCE INSTITUTIONS NATURAL DISASTERS NET ASSETS NET SAVINGS OUTSTANDING LOANS PAYMENT OBLIGATIONS PAYMENT SERVICES PORTFOLIO GROWTH POVERTY ALLEVIATION POVERTY REDUCTION PRIVATE INVESTMENT PRODUCTIVE INVESTMENTS RATES OF INTEREST REGULATORY REFORM REORGANIZATION REPAYMENT REPAYMENT BEHAVIOR REPAYMENT CAPACITY REPAYMENT RATES REPAYMENTS RETURN RETURNS RISK MANAGEMENT RISK MANAGEMENT STRATEGIES SEIZURE SEIZURE OF ASSETS SHOCKS TO INCOME SHORT-TERM LIABILITY STANDARD DEVIATIONS STOCKS SUPPLY OF CREDIT SUPPLY SIDE SUPPLY SIDES SUPPLY-SIDE SUSTAINABLE DEVELOPMENT UNSECURED DEBT VALUE OF ASSETS WAGE RATES poverty
Online Access:	http://documents.worldbank.org/curated/en/2013/08/18111659/microcredit-borrowers-bangladesh-over-indebted-microcredit-borrowers-bangladesh-over-indebted http://hdl.handle.net/10986/16007

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Summary:	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.

Are Microcredit Borrowers in Bangladesh Over-indebted ?

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