Over-indebtedness and Microfinance: Constructing an Early Warning Index

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.

 

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