Posted on December 8, 2009 - by James

The Poor In Debt: Oikocredit’s Concern In Microfinance…

MANILA, Dec. 8 /PRNewswire-Asia/ — The threat of poor entrepreneurs taking on too much loan debt is a growing reality, and a genuine threat to the rapidly expanding microfinance sector. At Oikocredit’s annual staff and board meetings, regional managers who operate in almost 70 different countries, raised concerns over the rate of over-indebtedness in some countries. Those working in the field have witnessed that cases of over-indebtedness are becoming more common. Oikocredit board and staff agreed urgent action is needed and defined an action plan.

Microfinance has grown at a tremendous pace. This development has been applauded because microfinance allows poor people and small entrepreneurs to receive financial services they could otherwise not access. While some regions continue to struggle with inactive MFIs and an unmet demand for financing, others are experiencing the reverse.

Microfinance institutions (MFIs) must expand to become financially sustainable. As such, they aim for scale and strive to reach out to more and more clients. In some cases, especially with the entrance of profit driven actors, this leads to an increase in competition and results in institutions reaching out to the same clients in the same (often urban) areas. Oikocredit Regional Directors reported stories of clients with loans by more than two, three or even five different microfinance institutions. The over-indebtedness of clients, and sometimes abusive collection practices, can often be a consequence of this multiple lending.

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