The Sacrifices of Microborrowers in Ghana – A Customer-Protection Perspective on Measuring Overindebtedness

This study measures the over-indebtedness of microborrowers in Ghana. It defines over-indebtedness from a customer protection perspective, considering borrowers over-indebted if they continuously struggle with repayment and experience unacceptable sacrifices related to their debt. The study derives findings on the sacrifices borrowers experience from an extensive customer survey of 531 microborrowers from five of Ghanas most important MFIs. It also tests the risk-management indicators of debt problems as predictors of the customer protection measurement of over-indebtedness. The study reveals that 30% of microborrowers in urban Ghana are over-indebted. Over-indebtedness is strongly related to delinquency and debt-to-income ratio, but not to total debt amounts or to multiple borrowing. Recommendations include:

• MFIs should introduce a customer satisfaction element to loan officer incentives;
• Regulators and investors should understand that need for customer protection goes beyond ensuring stable financial institutions;
• Donors should focus more on promoting the measurement of impact from a welfare perspective;
• Government and regulators should help to develop systems of debt relief and personal insolvency to reduce borrower sacrifice;
• Microfinance industry should measure customer satisfaction and impact as a standard management tool.