JBS Special Issue - Microfinance - 2012 - Dynamics and Determinants of Overlapping Borrowing from Microfinance Institutions

The overlapping of microfinance loans in the rural areas has become a highly contentious issue in Bangladesh and
elsewhere. However, the extent of multiple borrowing over the lifetime of a loan and its determinants at both
individual and household levels remains to be explored. We have used a novel dataset comprising of a census of all
borrowers in a Bangladeshi union. We define overlapping as a borrower taking a loan before the repayment of the
previous one in full. The probability that a loan will survive without overlapping by the end of twelfth month was 62
per cent with a uniform probability of overlapping during that time. We found that shocks, more specifically the
ones that are unanticipated in nature and possible competition in the microfinance institutional market, were
positively associated with overlapping. This could have important implications for repayment by and indebtedness
among rural households and for the viability of the rural financial sector.