Multiple Borrowing, Over-Indebtedness and Household Consumption Expenditure in Ghana

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.