Over-Indebtedness presentation
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1 Avoiding Client Over- Indebtedness March 2011 Loans that change lives
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Transcript of Over-Indebtedness presentation
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Avoiding Client Over-
Indebtedness
March 2011
Loans that change lives
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Client Protection Principles
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What is over-indebtedness? (OID)
• Defined as the inability “to repay all debts fully and on time” (Haas 2006, 3)
– But, “over-indebtedness only occurs if the situation occurs chronically and against the borrowers’ will.”
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What’s the problem?
• “A key to the success of microcredit is the thorough assessment of microfinance borrowers’ repayment willingness and capacity, resulting in high repayment rates.”
– From Over-indebtedness and Microfinance: Constructing an Early Warning Index
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What’s the problem?• From the Microfinance Banana Skins 2011
report—two biggest global concerns: – Credit Risk – Reputation
• Both issues relate directly to client over-indebtedness (OID).
• Examples from Bolivia (1999), Bosnia and Herzegovina and Morocco (2008)
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Interesting to note
• We should not confuse “multiple indebtedness” with “over-indebtedness”.
• In economic downturns, MFIs tend to be resilient while borrowers tend to be over-indebted
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Who likes math?• Indebtedness =
total monthly installments on household debt / (total monthly gross income of the household – total monthly expenses of the household)
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What is over-indebtedness?From CERISE Indicator 4.8
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CERISE Indicator 4.8
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Key Procedures 1
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Key Procedures 2
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Systems of Compliance 1
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Systems of Compliance 2
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Constructing an early warning index?• Paper by the Center for Microfinance at University of
Zurich, responsAbility, Council of Microfinance Equity Funds, Triodos Investment Management
• Five steps:– Identify historical crisis episodes– Select leading indicators as predictors– Set leading indicators’ thresholds– Construct composite leading indices– Predict crises
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Constructing an early warning index?
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Applying the early warning index
