Over-Indebtedness in Nepalese Microfinance Institution – A Study of Clients of Nirdhan Utthan Bank

Abstract

This paper analyses the over-indebtedness of micro-borrowers of Nirdhan Utthan Bank in Birgunj, Nepal. Descriptive analytical research design is attempted to explore the scenario of factor of over-indebtedness and impact of multiple borrowing. The research is primary data based on 150 sample respondents from Birgunj and convenient and structured questionnaire had been used to collect response of the respondents and data was collected through face to face interview with the clients. In this study majority of the clients are involved in multiple borrowing 82 %, it finds that loss of income and multiple borrowing is the major factor that leads to over-indebted. The paper also shows the association between factors of over-indebtedness and multiple borrowing and how frequently micro-borrower repeats them and for this cross tabulation analysis and chi-square test was used to analyze the data. The results show that over-indebtedness is significantly associated with multiple borrowing. The risk of over-indebtedness further increases with the occurrence of multiple borrowing. Results show that small size of loans issued by MFIs and needs of the clients was one of the major reasons for multiple loans contracts. Other reasons for multiple borrowing include family obligation, loan recycling, and relaxed or simple loan procedures, and influence from friends who are taking multiple loans, delayed loan disbursement from the MFIs in which the client first applied.