The Poor in Debt: Oikocredit's Concern in Microfinance

By Oikocredit, PRNE
Monday, December 7, 2009

MANILA, The Philippines, December 8 - The threat of poor entrepreneurs taking on too much loan debt is a
growing reality, and a genuine threat to the rapidly expanding microfinance
sector. At Oikocredit's annual staff and board meetings, regional managers
who operate in almost 70 different countries, raised concerns over the rate
of over-indebtedness in some countries. Those working in the field have
witnessed that cases of over-indebtedness are becoming more common.
Oikocredit board and staff agreed urgent action is needed and defined an
action plan.

Microfinance has grown at a tremendous pace. This development has been
applauded because microfinance allows poor people and small entrepreneurs to
receive financial services they could otherwise not access. While some
regions continue to struggle with inactive MFIs and an unmet demand for
financing, others are experiencing the reverse.

Microfinance institutions (MFIs) must expand to become financially
sustainable. As such, they aim for scale and strive to reach out to more and
more clients. In some cases, especially with the entrance of profit driven
actors, this leads to an increase in competition and results in institutions
reaching out to the same clients in the same (often urban) areas. Oikocredit
Regional Directors reported stories of clients with loans by more than two,
three or even five different microfinance institutions. The over-indebtedness
of clients, and sometimes abusive collection practices, can often be a
consequence of this multiple lending.

As a socially-driven organization, Oikocredit is seriously concerned
about the consequences of these developments for the microfinance industry,
but more importantly for its end clients.

"Credit is a stepping stone out of poverty - as long as repayment is
possible. If repayment becomes an insurmountable burden, a client becomes
over-indebted. We do not want MFIs and their clients to fall into this trap.
Organizations providing funds have an extremely important responsibility,"
said Oikocredit Managing Director Tor Gull.

Oikocredit board and staff decided to take a number of steps to
counteract this negative trend.

1. Oikocredit field staff in 33 offices around the world will share our
concern with the microfinance partners and seek actions to mitigate or
prevent over-indebtedness.

2. In countries where Oikocredit finances MFIs and competition is
increasing, staff will contact leading national and international
organizations and networks. The negative consequences of competition can only
be effectively solved through agreements on a national level and joint

3. Oikocredit will contact other socially oriented investors to
collaborate in tackling this issue.

With these measures, Oikocredit aims at stimulating dialogue among
institutions and investors commited to poverty alleviation and the prevention
of over-indebtedness.

About Oikocredit

Oikocredit is a co-operative financial institution that finances and
invests in microfinance institutions, co-operatives and small and medium
sized enterprises in developing countries, aimed at social impact.

For more information visit our website

More information: Please contact Juliette de Voogd, Department Corporate Communication on +31(0)33-422-40-40 or by email jdevoogd at

December 8, 2009: 5:18 pm

I’ts good to know you have taken the steps in preventing this over -indebtedness problem.

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