Responsible Finance Forum

Over-Indebtedness of Microborrowers in Ghana

Jessica Schicks
Source:  CERMi (Centre for European Research in Microfinance)
 Solvay Brussels School of Economics and Manangement (SBS-EM)
 Université Libre de Bruxelles (ULB)

Providing access to finance for those excluded from the formal financial system was and still is the mission of microfinance. What has changed, however, are the main challenges on the way to success. In the past, the financial sustainability of the service was the main hurdle to be cleared. Today, responsibility in service provision claims more of our attention.

This is because something has happened that seemed virtually impossible only a few years back. In some parts of the world where microfinance services have expanded rapidly, the problem is no longer too little access to finance, but too much. A phenomenon that has previously been known exclusively in industrialized countries has reached the developing world: over-indebtedness.

Over-indebtedness has to be taken very seriously, particularly since in many countries where microfinance operates, customer protection and social safety nets are not well developed. Accordingly, a customer with an unsustainable debt burden cannot file for insolvency and expect official procedures to pave the way to a fresh start. Few debt counseling agencies exist, and in most places there is no social security system to provide a subsistence income for the family if a microfinance client fails. In a nutshell, when a microfinance client becomes over-indebted, she is on her own.