Low income lives — How do the poor borrow, manage, and then repay loans?

MicroSave
MicroSave
Sep 7, 2018 · 2 min read

It is critical for microfinance institutions (MFIs) to understand the behaviour of the poor around loans for them to design suitable products, manage credit risk, and to optimise the digital transformation process that they must necessarily undertake.

Age-old borrowing traditions have absorbed much of MFI borrowing, which has supplemented but not replaced the informal systems. Some MFI loans are especially useful because they offer larger sums at a lower cost than borrowers could find elsewhere. Yet in other cases, MFI borrowing has led to over-indebtedness, and too many loans are pushed towards the borrower rather than being demanded by the borrower. bit.ly/2wEdvfS

Rachit Khaitan, an independent researcher, suggests in his publication “Managing Loan Repayments” that while the “one-size-fits-all approach of standard repayment schedules and loan amount caps may drive business efficiency and keep regulatory compliance simple, it may be driving households to use credit in unsustainable ways.” bit.ly/2NgCK1t

Maelis Carraro and Ashirul Amin, Senior Associates from BFA, have been working with the remarkable SAJIDA Foundation in Bangladesh to digitise its loan repayment systems using mobile money. They document the results and lessons learnt in “Riding (the) Rocket to digitised microfinance”. http://bit.ly/2NpQmYc

Mathilde Maîtrot, a Lecturer in International Development and Global Social Policy at the University of York, in her publication examines “what lies behind the commonly reported 99% repayment rates” of microfinance loans in Bangladesh. In “The daily costs of debt: Problematising repayment”. She highlights how the rigid repayment schedules of MFIs are unsuitable for poor and vulnerable borrowers. Maîtrot goes on to explore how loan officers enforce strict repayment and — if necessary to ensure repayment — push clients into borrowing from other sources, thus indebting them further. http://bit.ly/2CtM4uB

Follow more for insights on #Lowincomelives.

MicroSave

MicroSave

MicroSave is an international financial inclusion consulting firm with nearly 20 years of experience, operating in eleven offices across Asia and Africa.

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