Over-Indebtedness Among Microfinance Borrowers: A Poverty Line Based Approach.

Abstract

The current literature of over-indebtedness in general and microfinance in particular suffers from a serious weakness of not being able to identify an objective threshold of indebtedness level, beyond which a household can be treated as over-indebted. This paper tries to overcome this weakness by exploiting the peculiar situation in India of having a formally identified poverty line. We arrive at a measure of over-indebtedness by using per capita consumption expenditure at poverty line. Based on this definition about 39% of sample respondents (N = 210) were found to be over-indebted, mainly driven by economic shocks, earnings volatility, household income and expenditure levels, number of credit arrangements and dependence on informal sources of credit. Findings of the study highlight the need to prioritize income generating schemes over credit access promotion schemes as instruments of social policy.

Keywords: Microfinance, Over-indebtedness, Poverty line

JEL Classification: C93, C51, D14, D92, I31