MEDIA RELEASE PR37380
The Poor in Debt: Oikocredit's Concern in Microfinance
MANILA, Dec. 8 /PRNewswire-AsiaNet/ --
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 nd 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 initiatives.
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.
SOURCE: Oikocredit
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