Over-indebtedness and Microfinance: Constructing an Early Warning Index
By Vivien Kappel, Annette Krauss, Laura Lontzek – Published: 2010
This study examines the conditions that can lead to over-indebtedness and crisis in microfinance in order to create an early warning system for such events. This system constructs a composite index for predicting over-indebtedness crisis in the microfinance industry, using macro-level, microfinance market, firm-level, and household-level indicators. This index was constructed for 13 countries, some that had already experienced over-indebtedness or repayment crises. With this sample of countries, the report creates a classification of countries according to current risk. The paper suggests and provides recommendation for further validation of the index before it is applied to other countries.