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BlueNews 2010 - Special Edition on Overindebtedness
Overindebtedness of microfinance clients:
Challenges and opportunities in creating a healthy credit market
As a double-bottom line investor, BlueOrchard is very much concerned with the social impact of its investments and is committed to create a healthy credit market in order to achieve financial inclusion of low-income communities. The maturity level of certain microfinance markets has had some implications on the offer of microfinance services to the end client. Indeed, competition in more developed microfinance markets has provided the impetus for many MFIs to become more efficient and client-oriented, but unfortunately, has also led some institutions to pursue aggressive lending practices in order to continue growing. Some negative consequences as a result of clients borrowing from multiple lenders are now being seen: While microentrepreneurs have historically lacked access to financial services, in certain regions, they are now confronted with overindebtedness.
Overindebtedness impacts all stakeholders in microfinance. Borrowers who cannot repay their debts because they have taken on too many loans risk losing their livelihoods, their reputation and their chance to improve the lives of their families. MFIs that lend to them will have to write off their loans, and MIVs that lend to these MFIs will have to write down their investments; thus, the performance of the MIV will be impacted. Worst of all, the excellent work of so many microfinance practitioners can be jeopardized by careless and excessive lending that damages the industry’s reputation.
As responsible investors, we share our best practices and collaborate with other lenders to confront the risks of overindebtedness in different markets. A recent initiative at BlueOrchard was the launching of a first meeting of microfinance investors discussing overindebtedness in Peru. Next initiatives include jointly sponsoring client
studies and using collective leverage to work with credit bureaus and local associations to achieve superior accessibility to information and favourable policies, codes of conduct and legislation.
It is the responsibility of all participants in the industry to ensure that microfinance fulfills its central mission to improve the lives of MFI clients, and that overindebtedness does not harm the very significant contribution of building a fair and inclusive financial system for all.
In this edition of the BlueNews, we were interested in addressing overindebtedness from different angles: we have looked at two different local realities, Peru and Bosnia and Herzegovina. We have also invited a Peruvian organization and a researcher to share with us the key questions of their work.
We wish you an interesting read.
Jean-Philippe de Schrevel, CEO
BlueOrchard Investments Sarl
Jean-Pierre Klumpp , CEO
BlueOrchard Finance S.A.
Read the whole BlueNews 2010 in English >
Lisez la BlueNews 2010 en français >
