Doing Good by Doing Well? Microfinance, Self‐Regulation and Borrowers' Over‐indebtedness in the Dominican Republic

Abstract

The Dominican Republic's microfinance sector is considered to be a solid market where over-indebtedness prevention best practices are widely and successfully implemented. Relying on qualitative data collection tools and analysis, we identify these ‘best practices’ as self-regulation mechanisms, and we show how they fail to fully fulfil their goals in the Dominican market. While financial exclusion supports the idea of a sizable microcredit market, we argue that the focus on growth and high competition strongly jeopardizes the positive social outcomes of microcredit, and that only a paradigm shift within the sector will really change the present situation. Copyright © 2016 John Wiley & Sons, Ltd

Over‐indebtedness and microcredit in Cambodia: Moving beyond borrower‐centric frames

“…Given the voluntary nature of the Smart principles, and the limited oversight, it is unsurprising that on‐the‐ground practices may diverge from stated policy. Indeed, research on the Smart certification process suggests that even while “seriously designed, and with well‐intentioned purposes” the Smart Campaign is limited in its ability to protect borrowers against over‐indebtedness (Afonso et al., ). Based on research in the Dominican Republic, Afonso et al.…”

“…Based on research in the Dominican Republic, Afonso et al. () assert that while implementing consumer‐protection mechanisms reduces the risk of default, such practices do not adequately safeguard debtors. The authors argue that this occurs due to a large informal lending sector, a limited potential market and high growth objectives, which essentially create a glut of microfinance aimed at the urban working poor.…”

“…In this context, they write: “the current weapon of choice, self‐regulation, is ineffective. Actually, while microcredit markets may bring valuable social outcomes, competition, efficiency, and self‐governance translate into unhealthy growth and market saturation in some areas, affecting clients’ well‐being” (Afonso et al., ). Similarly, in the Cambodian context, microfinance has been widely profitable, with the bulk of the economic risk falling on borrowers.…”

“…While the past 20 years have produced a wealth of research on microcredit, there has been little interrogation of how dominant institutions and actors define, understand and seek to reduce debt stress among borrowers. Although qualitative research often describes borrower experiences of debt stress/over‐indebtedness in an effort to critique microcredit (Karim, ; Guérin, Morvant‐Roux, & Villareal, ; Ovesen & Trankell, ; Bylander, ), such research, apart from the occasional exception (Afonso, Morvant‐Roux, Guérin, & Forcella, ), rarely considers how actors in dominant institutions themselves understand and seek to treat over‐indebtedness.…”

Construção da agenda de inclusão financeira à luz da Teoria Ator-Rede

“…On the other hand, it is necessary to consider the negative effects of financial inclusion, among which over-indebtedness stands out (Afonso, Morvant-Roux, & Guérin, 2017;Schicks, 2014). It is often a result of inability to manage financial resources which become accessible (Altman, 2012;Custers, 2011).…”