Overindebtedness: what could we learn from microcredit?

Georges GloukoviezoffG2 Research

ONPES

To understand overindebtedness

A need of credit– Social necessity and lack of alternatives

Borrower decision– Skills and situation

Lender products– Characteristics and advice

Overindebtedness occurs– When credit is not the right solution– When characteristic of the credit are inappropriate

When the situation is problematic

Main lenders can fail– Assessment by scoring only

Microcredit strengths– Borrower’s global situation taken into account– Personalised pedagogy

Better results– Refusal understood by borrower– If needed, debt consolidation is made in the interest of

the borrower

When the credit is the problem

Main lenders credit can be inappropriate– Credit limits are too high– Interest rates are too high– When difficulties occur, fees are too high

Microcredit strengths– Amount lent is related to the need– When difficulties occur, personalised adaptation can be

made– When repayment becomes impossible, guarantee fund

reduces the debt

A microcredit at risk

To stay marginal and a communication tool– CSR approach

To become a market-based social welfare program– Poorest can protect themselves by themselves

To become a market– Microcredit will have to be profitable

An emergency and R&D tool

To face appropriately financial needs in emergency To highlight unsatisfied financial needs

– Lenders: Better access to appropriate credit– Third sector: Better skilled social workers and volunteers

in NGO – State: Better access to social welfare program

Need for regulation– Microcredit is a complement to main lenders– Assessment in relation with financial inclusion goals– Incentive for stakeholder