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From a Supply Gap to a Demand Gap? The Risk and Consequences of over-Indebting the Underbanked (Schicks J.)

Bank Products and Diversification Risk-taking and Risk Management

Abstract In the past, the microfinance industry focused mainly on growth and outreach. Addressing financial exclusion implied a huge supply gap. Recent over-indebtedness crises in several countries have shown that this gap can turn into over-supply. The industry urgently requires research to understand the magnitude and consequences of this shift. This chapter reveals the broad spectrum of consequences over-indebtedness can have on borrowers and other stakeholders, mainly MFIs. It emphasizes that over-indebtedness consequences reach far beyond the risk management concerns that MFIs and investors have on top of their mind. In a second step the chapter reviews the existing empirical research on microfinance over-indebtedness and examines how prevalent over-indebtedness is in microfinance markets today. It highlights the evidence for over-indebtedness in crisis markets and non-crisis markets, especially when markets mature. Only if the extent of the problem is known and its effects are properly understood, can the microfinance industry develop appropriate measures against over-indebtedness and adapt to the challenge of oversupply.
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Libref/ Schicks J. (2011) "From a Supply Gap to a Demand Gap? The Risk and Consequences of over-Indebting the Underbanked", CEB Working Paper N° 11/046
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