The Risk of Over-indebtedness of Microcredit Clients in Azerbaijan: Results from a Comprehensive Field Study

Date Published: 
Jan 2012
Pytkowska, J. & Spannuth, S.

Analyzing over-indebtedness among microcredit clients in Azerbaijan

This study examines whether there is a problem of over-indebtedness among microcredit clients in Azerbaijan. It analyzes the level of indebtedness and underlying borrowing patterns of microcredit clients, identifies demand and supply side factors that have led to or prevented over-indebtedness, and provides recommendations on how to address and prevent over-indebtedness. The analysis is based on survey data of a sample of 1,100 microcredit borrowers of eight microcredit providers. Findings include:

  • Scope of multiple borrowing is relatively low;
  • Cross-borrowing from different types of institutions is relatively rare, but high levels of cross-borrowing and over-indebtedness prevail in certain regions;
  • Microcredit clients exhibit good repayment discipline;
  • Guaranteeing for other borrowers was moderate;
  • About 50% of clients are not over-indebted;
  • Around 12% of clients admitted that repaying loans places a burden on their household’s finance;
  • Over-indebtedness is more often seen among clients with non-business loans for consumption and housing needs; and
  • Over-indebted clients do not save and more often borrow from informal sources.

The study concludes with specific recommendations to various market participants, such as microcredit providers, the microfinance association, the credit registry, investors, and donors, on tackling over-indebtedness.