Overindebtedness in microfinance

Master's Thesis from the year 2011 in the subject Politics - Region: Middle and South America, grade: 5.75/6.00, University of Geneva (GRADUATE INSTITUTE OF INTERNATIONAL AND DEVELOPMENT STUDIES ), course: Overindebtedness in microfinance, language: English, abstract: Originally celebrated as a poverty alleviation tool which is financially sustainable, microfinance is experiencing worrying developments, such as deterioration of loan portfolios, growingcommercialization and increasing public criticism due to exaggerated profits. Overindebtedness is one of the most worrying trends, as it has negative effects on the loan beneficiaries and in the same time it threatens the very existence of the sector. This field research analyses from an empirical perspective the causes and effects of overindebtedness in the specific case of the clientele ofFinanciera CREAR Arequipa S.A. in Lima Norte, Peru. It was found that overindebtedness is generated by a mix of causes related to the increased competition between microfinance institutions and to thespecific behaviours of clients confronted with an abundant credit offer. This produces a series of effects at institutional and client levels, which can be described as institutional cannibalization, clientforced-feeding, desperate borrowing and loan bicycling.