Since 2008, MFC has studied drivers and deterrents of client over-indebtedness through annual MFI mapping studies and targeted country studies
Our work reveals worrying trends around the scale of multiple borrowing and cross-borrowing from different financial institutions. The major lessons emerging include:
Key drivers of repayment problems:
- Number of loans: clients with multiple loans are more likely delay payments
- Loan size: larger loans are more often overdue
- Repayment phase: loans closer to maturity tend to be repaid with lower discipline
- High debt load: clients relay later when their monthly repayment is a higher percentage of their monthly disposable income
Key household-level factors preventing over-indebtedness:
- Emergency savings: clients who can cover unexpected costs from savings are less likely to default
- Remittances income: income received from migrant family members helps to prevent over-indebtedness
MFC recommendations
We developed a set of recommendations for key groups of industry stakeholders around responsible lending practices, transparency and financial education. These recommendations are based on our research in Bosnia-Herzegovina, Kosovo and Kyrgyzstan. Read this report in:
Learn more about our projects in:
- European Union: Measuring Over-indebtedness: Indicators, Data, Reporting
- Bosnia and Herzegovina: Indebtedness Revisited: the Level of indebtedness of MSME Credit Customers and the Quality of Finance
- Azerbaijan: Study on the risk of over-indebtedness of microcredit clients
- Kyrgyzstan: Research on indebtedness and repayment performance
- Kosovo: Study on the risk of over-indebtedness
- Bosnia and Herzegovina: Pilot study on access of low-income households to financial services
- Bosnia and Herzegovina: Follow-up study on the risk of client over-indebtedness
European Union: Measuring Over-indebtedness: Indicators, Data, Reporting
- DG SANCO report on over-indebtedness in the EU
- MFC presentation on availability of indicators in the EU
- MFC Policy paper: Debt, Borrowing and Over-indebtedness: a Country-Level Monitoring Framework Full text, Summary paper
Project Dates: 1st January - 31 December 2014
Supported by: European Commission
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Bosnia and Herzegovina: Indebtedness Revisited: the Level of indebtedness of MSME Credit Customers and the Quality of Finance
This report analyses the level of indebtedness of MSME credit customers and the quality of finance in Bosnia and Herzegovina (BiH).
The objectives of the follow-up study in 2013 are to:
- assess the current level of indebtedness and repayment performance of micro, small and medium enterprises (MSMEs) and retail borrowers in BiH,
- examine the factors – on both the demand and supply side – that drive high levels of indebtedness,
- assess the quality of finance for these clients of financial institutions, and
- propose recommendations for financial institutions in BiH.
Read the final report (English)
Azerbaijan: Study on the risk of over-indebtedness of microcredit clients
This study on the risk of over-indebtedness in the ECA region was carried out in partnership with the Azerbaijan Micro Finance Association (AMFA). The objectives were to:
- Understand the debt levels and underlying borrowing patterns of clients
- Identify demand and supply factors that influence over-indebtedness
- Recommendations solutions for over-indebtedness in the country.
Project dates: May 2011 – August 2012
Supported by: European Fund for Southeast Europe – Development Facility
Read the final report (English)
Kyrgyzstan: Research on indebtedness and repayment performance
In this study, MFC analyzed data from the CIB "Ishenim" credit bureau, which manages borrower information from around 50 financial institutions (banks and MFIs) in Kyrgyzstan. The objectives were to:
- measure clients’ level of debt use
- understand patterns of credit use
- identify credit use characteristics and demographic features of clients with repayment problems
- explore financial institutions’ perspectives on the drivers of over-indebtedness.
Project dates: June – December 2012
Supported by: ICCO
Read the final report: Research on the Level of Indebtedness and Repayment Performance of Individual Borrowers in Kyrgystan (English) (Russian)
Kosovo: Study on the risk of over-indebtedness
This study sought to understand whether there is a problem of (over-)indebtedness among microcredit clients in Kosovo. Through analyzing credit bureau data and conducting surveys with financial institutions and clients, we were able to:
- understand the debt levels and underlying borrowing patterns of clients
- identify demand- and supply-side factors influencing over-indebtedness
- recommend solutions to over-indebtedness.
This initiative was endorsed and supported by the Central Bank of Kosovo (CBK) and the Credit Registry of Kosovo (CRK).
Project dates: September 2010 – October 2011
Supported by: European Fund for Southeast Europe - Development Facility
Read the final report in:
Bosnia and Herzegovina: Pilot study on access of low-income households to financial services
This study examined the application of customer protection principles, access to financial services and the risk of over-indebtedness among low-income clients in Bosnia Herzegovina.
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. Importantly, this project was an opportunity to test the relevance of the issue on a smaller scale, and pilot the methodology before a roll-out study.
Project dates: September – November 2008
Supported by: European Fund for Southeast Europe - Development Facility
More information: Project website
Bosnia and Herzegovina: Follow-up study on the risk of over-indebtedness of microcredit clients
This study focused on client over-indebtedness in Bosnia and Herzegovina, levels of which were the highest in the Central and Eastern Europe market. The study results confirm that a sizeable proportion of borrowers in Bosnia and Herzegovina experience difficult financial situations and have problems repaying their debts.
Project dates: July – November 2009
Supported by: European Fund for Southeast Europe - Development Facility
Learn more here:
