Indebtedness of Microcredit Clients in Bosnia and Herzegovina

Analyzing reasons for over-indebtedness of microcredit clients in Bosnia and Herzegovina
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This study analyzes the indebtedness of microcredit clients in Bosnia and Herzegovina. It attempts to understand the level of indebtedness and borrowing patterns of microcredit clients, establish evidence on the scope of indebtedness, shed light on factors that lead to over-indebtedness and provide solutions to this problem.

The study was conducted from July to November 2009 on a sample of 887 microcredit borrowers from six microcredit organizations and one microfinance bank. Key findings include:

  • Majority of borrowers have multiple loans;
  • 27 percent of clients are overdue on their loan repayments;
  • Multiple borrowing and over-indebtedness go together;
  • Over-indebtedness is a function of a household’'s net income;
  • Repayment performance is correlated with client’s indebtedness levels;
  • More than one third of the borrowers are guarantors for others;
  • Deterioration of economic conditions and evolution of an easy credit culture are demand side factors that have contributed to over-indebtedness;
  • Competition among providers, risky lending and lack of an industry code of conduct are some supply side factors that have contributed to over-indebtedness.

The paper makes recommendations for key groups of industry stakeholders, based on study results.