Session Five: Overlapping and Drop-Out Behavior of Microfinance Households in Bangladesh
“Overlapping, as generally perceived, is not necessarily bad if the borrowers can mobilize resources, use it properly and repay in time” – a recent research study of InM revealed at the two-day National Conference on “Microfinance and Development” organized by Institute of Microfinance (InM).
The study also found that households borrow from multiple MFIs for meeting credit need for productive purposes. More than three-fifth of the accumulated loans are utilized for income generating activities and micro enterprises.
“Overlapping in Bangladesh does not add to over-indebtedness of the households”, Professor M. A. Baqui Khalily, Executive Director, InM, said in his presentation in the ‘Session Five’ of the national conference under the theme “Overlapping and Drop-Out Behavior of Microfinance Households in Bangladesh”.
At the second day of the conference, the session was chaired by Mr. Md. Abdul Karim, Managing Director, PKSF. Dr. Jashim Uddin, Deputy Managing Director, PKSF, and Professor M. M. Akash, Department of Economics, University of Dhaka, were present as the distinguished panelists. The Chief Guest of the session was Dr. Atiur Rahman, Governor, Bangladesh Bank.
Professor Khalily said, following appropriate methodology, it was estimated that more than 88 percent of the borrowers had low level of over-indebted as defined by loan due for repayment as a ratio of current income.
The study also evaluated over-indebtedness by growth rate of net assets with intensity of multiple overlapping. Net assets grew at higher with increase in intensity of overlapping, suggesting that in the long run, it is not a problem. One of the reasons is relatively small loan size.
The fact remains that households are able to use relatively large loan for their sustainable development. But cautious steps have to be taken to make such policy as it will increase risk for the MFI which is currently distributed over a number of MFIs, the study recommended.
Another major conclusion of the study was micro credit may not be suitable for every member under its existing terms and conditions. Program design matters. Additional services such as training, health care along with credit contribute to lower probability of drop out. Thus, improving capability of the members or borrowers should be a requirement to make micro credit more effective and reduce dropout rate.
In his speech, the Chief Guest Dr. Atiur Rahman thanked InM for organizing such timely and commendable conference with the aim of reshaping the development sector. He stressed the importance of developing a microfinance Credit Information Bureau (CIB) as the size of the industry has grown so much that it is important to know credit histories and multiple borrowing issues before new loans are made. Moreover, with the advent of mobile phone banking, microfinance CIB can truly revolutionize the industry like in other countries as loan officers can receive information about existing and potential borrowers on their mobile phone. It is needed to maintain the right balance of ensuring that microfinance institutions have the space to innovate while maintaining oversight of poor people’s money, he added.
The panelists of the session recommended that as the study on overlapping shows that the number of overlapped households is higher in Barisal; however the study should also analyze the reason behind it. The issues of transaction cost and rural-urban dimension are also to be addresses to analyze the overlapping issue. Overlapping should also be addressed by income category and repayment schedule. Supply side analysis should be incorporated to this study. It is also to taken into consideration whether the borrowers and the MFIs are aware of the risk of easy access to money which leads to overlapping. The major recommendation for dropout study is that it can be further analyzed based on regional differences.