Indebtedness of microcredit clients in Kosovo
Following the study on the risk of over-indebtedness in Bosnia and Herzegovina, the EFSE Development Facility, the technical assistance management arm of the European Fund for Southeast Europe (EFSE), commissioned a study to analyse the situation of indebtedness of microcredit clients in Kosovo in 2010.
The objectives of the study were:
- to gain an understanding of the level of indebtedness and underlying borrowing patterns of microcredit clients,
- to shed light to the factors (external, as well as demand and supply side factors) that prevented or led to over-indebtedness, and
- to provide recommendations on how to address and prevent over-indebtedness.
The study was conducted based on a sample of 1,200 microcredit borrowers of seven microcredit providers (four MFIs and three banks), which altogether stand for approximately 83% of the microcredit market in Kosovo in terms of the number of borrowers. The sample was drawn proportionally reflecting the market share of each institution. Clients of the participating institutions were randomly selected to assure the validity and representativeness of the data. In a first stage, a quantitative analysis was conducted based on secondary data of the sample clients which comprised (i) data on borrowings and guarantees reported to the credit registry and (ii) data on household demographics and income from the client files of the respective microcredit provider. The second stage of the study focused on assessing factors that influence indebtedness levels. On the supply side, interviews were conducted with representatives and staff of the participating microcredit providers. On the demand side, a survey was conducted among a sub-sample of approximately 800 clients.
The level of microcredit client (over-)indebtedness was assessed using two measures: i) debt service payments in relation to net income (net indebtedness index) and ii) the perception of debt burden. In terms of the demand-side factors affecting over-indebtedness, the analysis primarily focused on assessing the role of demographic, psychological and sociological factors as well as financial behaviour.
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