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PDF_logo Does Overlapping Borrowing in Micro Credit Market Contribute to Over-Indebtedness in Bangladesh?

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Does Overlapping Borrowing in Micro Credit Market Contribute to Over-Indebtedness in Bangladesh?


Paper No:47

Author:M. A. Baqui Khalily, Rushad Faridi and Farzana Saeed

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Pages:44

The study examines the relationship between overlapping borrowing and over-indebtedness. Is overlapping a problem? Does it necessarily cause over-indebtedness? What are its impacts on the household welfare? These questions have been addressed in this study using the household level data. The study finds that overlapping does exist. Individual overlapping is around 31 percent and household overlapping is reported to be 43 percent in 2009. It has increased in the last decade. However, this has not created any major adverse impact. Overlapping households are better-off in terms of higher net savings, net assets, income, food and non-food expenditures, number of earning members, diversification of occupation structure, and in employment creation.The issue of over-indebtedness is evaluated in terms of growth in net assets. Generally, overlapping has not contributed to over-indebtedness for any group of overlapping households. But there are areas of concern. First, overlapping households with five or more memberships have lesser growth in net assets than other groups. These households use a large part of the loans for lumpy expenditures and repayment of previous loans. Second, households with exposure to covariate shocks are more likely to be over-indebted because of their negative growth rate of net assets. Appropriate insurance mechanisms need to be created to minimise vulnerability of these households and create larger impact of microcredit.

 
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