To Mexico: Hypothesizing about Overindebtedness

e-MFP, 6 October 2014

This is part 1 of a 3-part installment from my brief visit to Mexico in October 2014.  See: parts two and three.

I’m on my way to Mexico, for what I hope to be the start of a deeper exploration of overindebtedness in the country. Data analysis an ocean away can be revealing, but there’s nothing like seeing the numbers come alive when visiting the field. First stop: Tapachula, Chiapas.

Every analyst has his or her own approach. For me, I find it best to come with a number of hypotheses and then see to what extent reality reflects those initial preconceptions. I like to keep an open mind and am always willing to change my view. Still, having a pre-existing framework in mind helps structure field observations, especially when time is short.

I’ve already shared my thoughts on multiple borrowing and overindebtedness in Mexico, but those go back a couple of months. Since then, I’ve spent a fair bit of time digging deeper into the data and comparing Mexico to what I’ve seen elsewhere (including finalizing a study of Moroccan MFIs during 2008-13, including how they dealt with substantial multiple borrowing during 2009). Based on this and earlier work, I’m putting down some of my hypotheses below. more →

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Categories: e-MFP

Introducing MIMOSA: Microfinance Market Capacity Measurement Tool

CGAP, 7 August 2013, co-authored with Emmanuelle Javoy

When you hear the word “Mimosa,” you might immediately think of the refreshing champagne cocktail. But now the MIMOSA – the Microfinance Index of Market Outreach and Saturation – also has relevance to financial inclusion. In brief, the MIMOSA is a simple way of measuring microfinance market capacity, an important complement to the approach described in a recent blog in this series by Annette Krauss and her colleagues from the University of Zurich. The key difference in the two approaches is that they work from entirely opposite starting points.  more →

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Categories: CGAP

Saving Chiapas, Saving Ourselves: How to avoid a repayment crisis in Mexico

Financial Access Initiative, 5 June 2013

My last two posts described the high risk of a repayment crisis in Chiapas, Mexico, and its potentially devastating consequences to the microfinance sector around the world.  But here is the good news: thus far there is no crisis, and one could still be avoided.

I have argued before that DFIs and other funders could leverage Smart Certification to enforce client protection practices and thus avoid the kind of overlending that’s happening in Chiapas.  However, that prescription alone would not work in Mexico, mainly because a large number of Mexican MFIs are independent of foreign funding, and there are many other lenders active in the same space, including consumer finance companies and large retailers that provide credit.

The answer to avoiding a repayment crisis in Mexico will thus require government action, most likely new legislation that would bring all lenders under a common set of regulatory standards.  Specifically, there are two key areas that must be addressed:
more →

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Categories: Financial Access Initiative

Rethinking Multiple Borrowing

Financial Access Initiative, 14 September 2011; MicrofinanceFocus, 15 September 2011

Some time ago, I had a conversation with a microfinance investor.  What is the greatest challenge facing the sector? – I asked.  His answer:  multiple borrowing – multiple borrowing getting people into too much debt; multiple borrowing transforming micro-enterprise lending into consumer finance; multiple borrowing rewriting the traditional relationship between MFIs and their clients.

Of course, multiple borrowing is present in all of these cases.  But thinking about multiple borrowing along these lines misunderstands the basic situation. Multiple borrowing isn’t a reflection of some recent or extreme developments to be ascribed to runaway growth, greed, or willing ignorance.  And despite press articles to the contrary, it is neither a result of heavy market penetration, nor even saturation. No, multiple borrowing is an intrinsic part of the practice, one that has been with us for years. more →

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Categories: Financial Access Initiative, Microfinance Focus