There are endless ways to measure the successes of a given year. Number of clients reached. Total new stakeholder endorsement. Amount of capital invested… Though when assessing almost anything, it’s important to think holistically and not be biased by the numbers. That said, I think I can speak for most of the Center in saying that we are excited to share that several CFI-affiliated publications were among the Microfinance Gateway’s Most Popular Publications of 2012. No small feat considering 546 new resources were added to the Gateway this past year. Here’s a brief listing of the CFI pubs that made this top cut:

Over-Indebtedness in Microfinance: An Empirical Analysis of Related Factors on the Borrower Level

This paper by Jessica Schicks analyses the over-indebtedness of microborrowers in Ghana, examining its relationship with poverty, adverse shocks, loan returns, and financial literacy. In defining over-indebtedness, the paper adopts a client perspective, taking into account clients’ repayment struggles and the sacrifices they make to fulfill payment obligations. Some of the paper’s findings are the following:

• Poorer micro-borrowers are more likely to be over-indebted;
• Risk of over-indebtedness further increases with the occurrence of adverse economic shocks to a borrower’s income or expenses;
• Likelihood of over-indebtedness is higher for borrowers with low returns on their investment and if borrowers use loans at least in part for non-productive purposes;
• Over-indebtedness is higher for borrowers with low, debt-specific financial literacy. General financial literacy is negatively associated with over-indebtedness.

The paper received research and financial support from the Smart Campaign. A less academic version of the paper, published by the Smart Campaign in 2011, can be found here.

Smart Microinsurance: An Overview for Microfinance Institutions on Incorporating Client Protection Practices into Microinsurance

Produced jointly by the Smart Campaign and the Microinsurance Network, this toolkit provides client protection guidance for MFIs offering microinsurance products through external insurance companies. The toolkit includes three sections: a listing of social performance indicators for microinsurance; guidance for product design and partnerships; and guidance for incorporating the Client Protection Principles into each phase of the microinsurance process. The toolkit identifies service points of contact and offers best practices for policies and procedures.

Risk and Relevance: The 2012 Microfinance Banana Skins Survey

Although in a different category than the Most Popular Publications of 2012, the Banana Skins report of 2012 was among the top four in the Gateway’s Most Popular Microfinance Voices of 2012 category. The Banana Skins report series presents the most pressing risks facing the microfinance industry and what can be done to manage them. Staying Relevant, the fourth report in the series, found a pressing importance on managing corporate governance risk.

For the full library of CFI publications, papers, and resources, visit our website. 

Image credit: CGAP Microfinance Gateway

Have you read?

Microinsurance on the Roadmap to Financial Inclusion

Banana Skins 2012: Improving MFI Governance

CFI Publishes ‘Over-Indebtedness of Microborrowers in Ghana’ Report by Jessica Schicks

This post marks the Center’s launch of “Over-Indebtedness of Microborrowers in Ghana,” a new report written by Jessica Schicks.

“Over-Indebtedness of Microborrowers in Ghana” is an innovative and already influential study on what is currently the main concern of microfinance practitioners (cf. “Microfinance Banana Skins 2011,” CSFI).

The research considers a very relevant country for global microfinance trends, as Ghana is a prime example of a well-developed sector where observers have noted potential warning signs of over-indebtedness: Urban markets (especially in the capital, Accra, and in the business capital, Kumasi) are increasingly served by a variety of financial institutions (mainly deposit-taking NBFIs and NGOs), the credit bureau system is arguably still not up to speed, and there is a relatively large number of informal/unregulated credit providers.

Indeed, a recent study of the Center for Microfinance at the University of Zurich identifies Ghana having a “medium to high level of early warning signals for over-indebtedness” based on a set of 14 macro/industry indicators.

The author’s approach to assessing potential over-indebtedness is to turn the tables on the methodology used so far, putting the perspective firmly on the final borrowers, rather than on the lenders (or the macro/industry structure). Over-indebtedness could indeed happen, even in the absence of arrears, if microfinance clients undergo unacceptable sacrifices in order to repay (a situation which could go undetected, despite the clear risk of deteriorating into defaults). The study thus proceeds to interview over 500 clients (borrowers) of five of the largest Ghanaian institutions (jointly representing nearly half of the Ghanaian microfinance market, according to MIX Market), asking them about sacrifices in terms of food, education, work, or social interactions to assess the “hidden costs” of their indebtedness.

While at the macro/industry level the survey sees no major concern in terms of penetration rates, competitive behavior of the MFIs, delinquency, or multiple borrowing, the report finds that 30 percent of microborrowers “struggle so much with their repayments that we call them over-indebted from a customer protection perspective.” This result has clear policy implications that would need to be addressed by Ghanaian MFIs in terms of product design. (Encouragingly, all the largest Ghanaian MFIs we have met with at BlueOrchard appeared aware of the study and of its implications.)

In sum, “Over-Indebtedness of Microborrowers in Ghana” is a much-needed reminder to practitioners and researchers to focus on repayment struggles, as well as on arrears and penetration rates, putting customer protection at the center of the efforts to track over-indebtedness and design products.

Have you read?

Peruvian MFIs Advance ASOMIF Initiative Targeting Over-Indebtedness

‘We Need to Keep Learning About Over-Indebtedness’ – Beth Rhyne on CGAP Microfinance Blog

Study on Over-Indebtedness in Microfinance Markets Published