Abstract:
Multiple borrowing and over-indebtedness are significant issues of the credit industry,
which have attracted recent scrutiny. As a growing area of study, this
thesis extends existing research from an objective perspective. The three themes
addressed are: (1) the effect of institutional density on multiple borrowing, (2)
the effect of loan amount on over-indebtedness, and (3) the effect of overindebtedness
on household consumption expenditure. It adopts a quantitative
approach using secondary data from GLSS6 and RAFiP surveys. Probit, logit
and identification by heteroscedasticity estimation techniques were employed
for the analyses. The results suggest that increasing the density of MFIs in rural areas may engender multiple borrowing and rural clients of FNGOs may be
more likely to engage in cross-borrowing. Larger loan amounts raise the
probability of over-indebtedness; however, the magnitude depends on the loan
size. Over-indebtedness reduces household consumption expenditure by 20
percent, leading to a fall in living standards. Prevalence of multiple borrowing
and over-indebtedness are 35 and 28.7 percent respectively. The thesis confirms
existing concerns and recommends the following for stakeholders: borrowers’
financial discipline; institutions are advised to cap the critical threshold of debtburden
at 15 percent; particularly, for borrowers on low incomes and share
information between them to monitor rising indebtedness. The Microfinance
Desk at Bank of Ghana (BOG) is advised to strengthen institutional monitoring.
The Ministry of Finance could establish a Credit Advisory Bureau (CAB) in
every region and the government is advised to deepen the social objective
framework of credit delivery for vulnerable clients.
