Indebtedness of Microcredit Clients in Kosovo

Date Published: 
Jan 2011
Pytkowska, J. & Spannuth, S.
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The incidence of over-indebtedness & factors affecting indebtedness of microcredit clients in Kosovo

This study examines the level of indebtedness and borrowing patterns of microcredit clients in Kosovo. It identifies factors that led to or prevented over-indebtedness, and provides recommendations on how to prevent over-indebtedness.

The study presents findings on borrowing patterns, repayment performance, over-indebtedness, and relationship between indebtedness level and repayment performance. It analyzes effects of external as well as supply and demand-side factors on over-indebtedness levels. Microcredit client over-indebtedness was assessed using two indicators: a net indebtedness index and the perception of debt burden. Findings include:

  • Availability of coping mechanisms in case of income shocks allowed borrowers to keep up with their repayment schedule;
  • Operations of the credit registry played an important role in preventing over-indebtedness;
  • Intensity of marketing and lending behavior were supply side factors that influenced the indebtedness of microcredit clients;
  • Demand side factors associated with the perception of debt burden included external factors, demographic characteristics, financial behavior and psychological characteristics;
  • Actual amount of debt did not influence the perception of debt burden.

The study recommends transparency and information sharing about credit activities, responsible lending practices, and financial education of clients to prevent the deepening of over-indebtedness.