Received: 13 November 2019 Revised: 4 April 2021 Accepted: 27 April 2021

DOI: 10.1002/jid.3551

RESEARCH ARTICLE

The density of microfinance institutions and

multiple borrowing in Ghana: Are rural borrowers
vulnerable?

Ewura-Adwoa Ewusie1 | Samuel Kobina Annim2 |

3
William Brafu-Insaidoo

1
School of Economics, Department of
Economic Studies, University of Cape Coast,
Abstract
Cape Coast, Ghana This primal study investigates the extent of multiple
2
School of Economics, Department of Applied borrowing in Ghana and explores the relationship between
Economics, University of Cape Coast, Cape
the density of microfinance institutions (MFIs) and multiple
Coast, Ghana
3 borrowing. Further analyses examine the susceptibility of
School of Economics, Department of Data
Science and Public Policy, University of Cape rural borrowers, and the influence of individual MFI
Coast, Cape Coast, Ghana categories. The incidence of multiple borrowing in Ghana is

Correspondence 35%. Although an increase in MFI density is less likely to

Ewura-Adwoa Ewusie, School of Economics,
Department of Economic Studies, University
of Cape Coast, Cape Coast, Ghana.
Email: ewura.ewusie@ucc.edu.gh
engender multiple borrowing, rural clients have a propensity
to overlap and are also sensitive to different institutional
features. The study contributes vital empirical evidence of
MFI expansion on multiple borrowing and has wider
implications for institutional sustainability and clients'
economic livelihoods.

KEYWORDS
microfinance, microcredit, multiple borrowing, microfinance
institutional density, rural borrowers, sub-Saharan Africa

JEL CLASSIFICATION

D12; D18; G21; G51

1 | I N T RO DU CT I O N

For almost three decades, the global microfinance industry has witnessed a surge in the participation of
commercially-oriented institutions in response to its transformation from the welfarist1 to the institutionalist2 model.
The revolution was against the backdrop that increased access to financial services promotes economic
empowerment of the financially excluded, especially microcredit given to individuals and groups in developing

J. Int. Dev. 2021;1–21. wileyonlinelibrary.com/journal/jid © 2021 John Wiley & Sons, Ltd. 1
2 EWUSIE ET AL.

countries. However, a rapid evolution of the financial industry is not without its inherent risks. Diagnosing the onset
of the financial crisis, the IMF Global Financial Stability Report3 acknowledged that risks associated with a pervasive
credit environment and the relaxation of institutional monitoring processes resulted in the global financial turmoil
[International Monetary Fund (IMF), 2007]. Griffith-Jones and Karwowski (2013) also highlighted the relationship
between rapid institutional growth and attendant risks by asserting that financial crises and ensuing vulnerabilities
run parallel to exponential financial growth.
Following the global financial crisis, the unprecedented evolution of the microfinance industry also unveiled
embedded risks of a rapidly growing sector. The effects of profitability on institutional growth4 and the subsequent
proliferation of microfinance institutions (henceforth, MFIs) were demonstrated by the ensuing crises. Notable
among these is the Andhra Pradesh crisis in India. Other cases include multiple borrowing, defaults, delinquencies
and saturation as reported in Cambodia, Nicaragua, Bosnia Herzegovina and Bangladesh (Bateman & Chang, 2012;
Khandker et al., 2013; Maurer & Pytkowska, 2011). Among the emerging risks, evidence suggests that multiple
borrowing5 has become a real challenge for the microfinance industry. Rhyne (2001) referred to the phenomenon as
contributing to the causes of the Bolivian crisis. McIntosh et al. (2003) also highlighted that multiple borrowing poses
significant challenges to borrowers, and according to O'Loughlin (2006), a proliferation of credit promotes easy
access to cyclical borrowing.
In Ghana, recent occurrences in the microfinance market exposed inherent fragilities in the system due to inten-
sive market-driven objectives. Initially, there were five main recognised groups of MFIs. These were the credit unions
(CUs), rural and community banks (RCBs), savings and loans (S&Ls), susu companies and individual operators (Susu),
and financial non-governmental organisations (FNGOs).6 However, unfettered providers operated along formally
recognised ones, thereby proliferating the market and increasing the risks faced by clients of such unregulated
operators. This rising volume of surreptitious activities subsequently led to a major overhaul to combat excesses in
the industry. The Bank of Ghana acknowledged two more nonformalised groups: microfinance companies (MFCs)
and money lenders (MLs),7 culminating in seven distinctive categories officially recognised for effective regulation
and monitoring. Following the restructure, persistent growth signalled more weaknesses in the system, as quite
evidently depicted by the DKM microfinance crisis;8 an incident, which severely threatened the savings and
livelihoods of their numerous clients.
While uncertainties and challenges were emerging regarding the growth of the global industry, the
microfinance market in Ghana was already expanding aggressively. The recent microfinance census suggests that
there are approximately 3000 MFIs in Ghana despite the high rate of entry and exit, and within 18 months (from
March 2014 to October 2015), the newest category of MFCs grew by 13%. Profit-oriented institutions also
granted over 76% of microloans [Rural and Agricultural Finance Programme (RAFiP) Report, 2016]. The emerging
growth of MFIs excites a source of concern, given that the recent census data suggest an exponential increase
in the number of microfinance clients to over seven million. By the end of 2009, the growing industry is
reported to have reached over 358 000 borrowers (Schicks, 2011). Implying that, within 6 years, most of which
covered the post-2011 regulatory intervention, the market witnessed an astronomical increase in its number of
clients by over 1900%.
The rapid increase in microfinance clients could have two implications. First, more people have had access to
financial services, especially credit. Second, for those who have taken loans, the total clientele may not entirely
reflect disparate borrowers. It could also suggest a possibility of increased borrowing due to bourgeoning opportuni-
ties for accessing additional loans from the same or a different provider. Notably, when the number of clients was
just about a fifth of the current estimation, earlier investigations into MFI operations suggested warning signs of
multiple borrowing in the country (Grammling, 2009). Evidence also suggests that increased borrowing leads to
repayment problems and a cyclical debt trap (Arnold & Booker, 2013; McIntosh & Wydick, 2005). Unsurprisingly,
within a decade of the initial warning of multiple borrowing, the industry confronted another regulatory intervention
to maintain confidence and discipline in microfinance operations and to ameliorate commercial excesses in the
market.9 The closures are, therefore, suggestive of inherent problems.
EWUSIE ET AL. 3

Most importantly, the prevailing coronavirus (COVID-19) pandemic has aggravated economic difficulties faced
by clients of collapsed MFIs, especially, DKM Microfinance customers, who recently reiterated the continuous
hardships they have suffered since 2015.10 According to the recent Ghana Living Standards Survey (GLSS Round 7),
poverty declined marginally, but given the current population, the figure has increased by almost 400 000 people,
which is quite significant.11 Poverty also remains a rural phenomenon—the incidence of poverty in rural areas is
approximately 40% and 8% in urban locations [Ghana Statistical Service (GSS), 2018]. The evidence implies that rural
inhabitants suffer a more significant proportion of the increase in poverty, which indicates the precarity of their
economic lives.
The recent microfinance data also suggests that 52% of rural clients have multiple loans, of which 60% is
below the poverty line. Rural borrowers' tendency to take additional loans may be linked to their economic
background and the growth of MFIs, as they reach out for more clients. According to Khandker et al. (2013),
the density12 of MFIs is a possible source of multiple borrowing. It is, therefore, unsurprising that in Ghana,
the expansion of MFIs has generated an overlapping response from both rural and urban borrowers.
Although the revelation of the borrowing behaviour of rural clients may not be indicative of debt problems
per se, the cautionary insight stems from the high incidence of poverty in rural areas and the corresponding
higher percentage of rural clients with multiple loans. The preceding awareness may be unsettling given that
the warning signs of multiple borrowing was suggested a decade ago, and yet, the extent of the phenomenon
and its implications are still unknown. The consequences of MFI operational excesses and corrective action
already witnessed and the underlying vulnerability of rural borrowers provide additional impetus for exploring
this long-standing issue. Therefore, there is an urgent need for crucial empirical evidence on multiple borrowing
to inform policy, which should safeguard borrowers against a possible situation of repayment challenges and
debt traps.
As a first objective analysis,13 this paper seeks to examine the institutional environment (in terms of the number
of MFIs) and borrowers' tendency to overlap; particularly, rural clients who have an underlying susceptibility. It
estimates the incidence of multiple borrowing in Ghana and explores the relationship between MFI density and
multiple borrowing from the borrower perspective. The suggested pull-analysis is predicated on the sharp increase in
the number of MFI clients, which may be the consequence of a proactive response from borrowers due to their
circumstances and an increase in commercial MFIs.
Due to the distinctive classifications of MFIs in Ghana, this investigatory analysis is extended to examine the
interdependency of MFI density and client location to highlight the different institutional variations that may pertain.
From the census data, five MFIs are active in loan distribution.14 The motivation to examine relationships for distinct
categories is based on the suggestion that clients of the various MFI categories may respond differently to
institutional features and varying operational activities (Lützenkirchen & Weistroffer, 2012). The study uses the first
available data on MFIs and adopts a borrower-centred approach to produce initial vital information, which should
inform future studies on multiple borrowing.
The rest of the paper is structured as follows. Section 2 charts the theoretical background and empirical
evidence on institutional growth and multiple borrowing. Section 3 describes the data and model specification.
Section 4 presents the prevalence of multiple borrowing and results of the institutional density analyses. Section 5
discusses the relationship between MFI density and multiple borrowing. The discussion is augmented with the
influence of the density of MFI categories on the multiple borrowing tendencies of rural clients. The final
section presents the conclusion.

2 | T H E O R E T I C A L A N D E M P I R I C A L BA C K G R O U N D

Historically, the Life Cycle-Permanent Income (LC-PI) hypothesis has been an anchoring framework underlying the
analysis of consumption behaviour. It presents the rationale behind saving and borrowing opportunities,
4 EWUSIE ET AL.

which provide a pathway to smooth consumption over crucial stages of a representative consumer's lifetime
(Betti et al., 2007). As postulated, the desire to save or borrow is guaranteed by a lifetime of current and permanent
income and a system of capital markets, which ensure returns on financial investments and access to credit avenues.
The representative agent, therefore, manages consumption within this vital framework.
From the LC-PI hypothesis, a capital market setting suggests that the representative consumer has unlimited
access to credit to smooth consumption or invest in income-generating activities. However, due to capital market
imperfections, institutional regulations may not be sufficiently enforced to curtail excesses (Schicks, 2013), and
the laissez-faire environment also creates opportunities for individuals to optimise benefits from institutions
seeking to maximise returns. Such a prolific credit environment could provide uncapped access to credit; albeit,
within the necessary institutional requirements. Hence, institutional characteristics such as expansionary
choices, internal regulatory frameworks, nature and types of products and attitude to clients could promote
lapses in the system, resulting in borrowing tendencies that could lead to financial challenges for institutions and
borrowers alike.
The principal-agent theory conceptualises the dynamics of capital markets and borrower behaviour. It
explains how capital market conditions and loan contracting processes may be usurped or undermined by the
activities of both parties. The theory advances information asymmetry challenges, which suggest that due to
particular institutional practices, information not promptly available to the provider may be readily utilised to the
advantage of the borrower.15 In the microfinance industry, institutional characteristics and personal
circumstances can result in opportunities for uncapped access to and use of credit; especially, in environments
where there are no robust credit bureaus to provide information on borrowing behaviour. Such gaps existing at
the operational level could induce and facilitate heterogeneous behaviour (Johnson, 2004; Krishnaswamy, 2007).
Hence, the more MFIs extend their operations, the higher the tendency for clients requiring additional credit to
reach out to institutions also eager to lend. Therefore, the presence, coverage, operational choices and practices
of MFIs reflect the institutional environment, which contributes to the extent of borrowing and its associated
challenges.
Notably, Chen and Chivakul (2008) suggest that institutions control the final decision on how much to lend as
they assess their lending capacity and clients' credit-absorption eligibility and capability. Schicks (2011) highlights
borrowers' reference to their small loan sizes, high interest rates and restrictive grace periods.16 Therefore, in
contrast to the positive effort to promote accessibility, the preceding reflects the unfavourable operational,
institutional environment encountered by borrowers. It is also suggested that, in regions where there are challenges
with loan recovery, a borrower's specific location is associated with credit rationing by some institutions
(Magri, 2002). Given these circumstances, the availability of unfettered credit due to competition and institutional
expansion, promotes additional legitimate or opportunistic borrowing and loan recycling to further consumption
smoothing or honour repayment obligations (Chichaibelu & Waibel, 2017; Gonzalez, 2008).
From the institutional perspective, multiple borrowing is attributed to competition due to the rapid expansion
and concentration of MFIs in an area, a condition which favours lax lending practices, leading to clients' possession
of more than one loan from the same or a different provider (Gonzalez, 2010; Khandker et al., 2013; Liv, 2013;
Vogelgesang, 2003; Wisniwski, 2010). While evidence suggests that competition leads to greater awareness of
financial efficiency (Hermes et al., 2011), others indicate that increased competition leads to lowered standards,
escalating debt-load and attendant challenges (Khandker et al., 2013; Schicks & Rosenberg, 2011). Therefore,
multiple-borrowing derives from the concept of competition17 and institutional growth, and the concentration of
MFIs in an area (Johnson, 2004; Krishnaswamy, 2007; McIntosh et al., 2003; McIntosh & Wydick, 2005;
Wisniwski, 2010). According to Khandker et al. (2013), institutional growth refers to the visibility and rapidity in the
spread of financial institutions and signals the ‘presence and extent of coverage’ of institutions in an area (p. 22).
Consequently, the MFI density variable, measured by the number of MFIs in a locality, captures the presence,
coverage and institutional practices, and has been suggested as constituting a possible source of multiple borrowing
(Khandker et al., 2013).
EWUSIE ET AL. 5

Available empirical evidence highlights the extent of multiple borrowing in areas with intensive microfinance
activities. Krishnaswamy (2007) cites evidence from an exploratory study, which indicates that before the crisis,
the prevalence of multiple borrowing in India was between 20% and 40% in moderately concentrated parts and
50%–75% in high density areas (Burki & Shah, 2007). Johnson and Meka (2010) also noted that 84% of rural
borrowers had two or more loans. In Bangladesh, 61% of Grameen clients were members of other programs, and
70% of borrowers in Tanzania had at least two loans from different MFIs at the same time (Khandker &
Samad, 2014; Mpogole et al., 2012). For borrowers in Cambodia, 56% had multiple loans in saturated markets,
and multiple borrowing is estimated to have risen to 75% in Sri Lanka (Liv, 2013; Tilakaratna, 2013). The
suggested incidences of multiple borrowing indicate a fledgling issue of concern, particularly for low- and middle-
income countries with intensive and growing microfinance sectors.
The dominant empirical evidence on determinants of household borrowing focuses on consumer
finance and is mainly Eurocentric due to the intensified use of consumer credit in Europe. From the literature,
the agent's personal characteristics, socio-economic situation and the prevailing external environment can
influence individual borrowing choices. The European Commission report (2008) cites borrowers' socio-
demographic and economic factors as contributing to a state of increased credit use and associated difficulties.
Personal circumstances, which promote an increasing credit commitment include low income, being unemployed,
having a highly-skilled occupation, being female or a younger-aged adult, having dependents or being
separated, divorced or widowed (BIS-Department for Business, Innovation and Skill, 2010; European
Commission, 2008). There is, however, a negative relationship with long-term unemployment and borrowers
who have never worked (BIS-Department for Business, Innovation and Skill, 2010). Therefore, low income,
age, sex, marital status, number of dependents and employment status have been identified as triggers of
household borrowing.
Similar to the rise in consumer finance, the concept of multiple borrowing gained prominence with the
insurgence of microcredit. However, there are few studies on multiple borrowing in low- and middle-income
countries (Khandker et al., 2013). The scarce empirical evidence suggests that factors driving the phenomenon
originate from the external, demand and supply perspectives. In the 1999 Bolivian crisis, part of the repayment
challenges was attributed to a stall in the external macroeconomic environment, which led to a reduction in
economic activities (Rhyne, 2001). In Tanzania, the authors identify the level of education and number of
dependents as significant demand-side variables with a positive relationship with cross-borrowing (Mpogole
et al., 2012).
From the supply-side, Krishnaswamy (2007) investigates issues of competition and multiple borrowing using
seven MFIs in one state. This study highlights the concern of ‘aggressive growing MFIs leading to multiple
borrowing’ (p. 45). Similarly, in their work on microfinance programme participation and indebtedness, Khandker
et al. (2013) surmise that ‘the village-level density of MFIs, measured by the number of NGOs in a village, a possible
source for raising multiple program membership and a measure of MFI competition, is causing the extent of
over-indebtedness in Bangladesh’ (p. 17). For this reason, the authors control for MFI density in their study
of indebtedness. However, it can be inferred from the foregoing that the relationship between the density of
MFIs and multiple programme membership is tentative, and does not rely on scientific evidence regarding the
explicit link between these two phenomena. The interest, therefore, is in the implied connection between MFI
density and multiple programme membership.
Despite the intense growth of microfinance institutions, which led to their reclassification for supervision
and regulation, the suggested influence of institutional density on clients' borrowing behaviour is also
unknown. Since multiple borrowing and the lending environment are both unexplored territories, this study
provides the first empirical evidence on multiple borrowing in Ghana. From its modest approach, it contributes
knowledge from sub-Saharan Africa on whether institutional density and type of MFI can influence borrowing
tendencies.
6 EWUSIE ET AL.

3 | D AT A

The research employed a cross-sectional nationally representative survey data commissioned by the Ministry of
Finance and Economic Planning (MoFEP) under the Rural and Agricultural Finance Programme (RAFiP). The
RAFiP 2015 survey was conducted to investigate the state of microfinance operations and the impact of
microfinance on poverty reduction in Ghana. The target population constitutes MFIs (MFCs, RCBs, CUs, FNGOs,
S&Ls, MLs and Susu) operating in Ghana, their respective clients and microfinance non-client households. A
sampling frame was developed for the client and non-client households in consultation with the microfinance
apex institution, Ghana Microfinance Institutions Network (GHAMFIN) and Ghana Statistical Service (GSS). From
a proportional distribution of all seven categories of MFIs in the 10 administrative regions, a sample of 46
institutions was randomly selected to provide the primary sampling unit from which client households were
randomly selected. Non-clients were sampled at the household level based on the sixth round of the Ghana
Living Standards Survey. Data collection was at the individual, household and institutional levels.
The survey used a structured questionnaire adapted from the Microfinance Poverty Assessment Tool (MPAT).
Out of the 3156 total survey sample, 2009 were clients of MFIs and 1147 were non-clients. Although the data have
observations for clients and non-clients, the survey, which was based on the MPAT questionnaire for poverty
assessment, is mainly client-focused and precludes relevant client-level institutional variables, which should support
an impact analysis of institutional density and multiple borrowing. However, the data set contains comprehensive
household-level information on socio-economic and demographic characteristics such as age, gender, level of
education, marital status, household composition, economic activity, rural–urban residence, household expenditure,
amount of current loan and returns on investment. Institutional-level data constitutes average quantities of loan size,
savings and interest rates.
The study uses the client sample with comprehensive household-level data, which permits the exploratory
analysis of multiple borrowing from the demand perspective. Of the client sample, 57% indicated that they have a
current loan. Given the high response rate, the sample for the multiple borrowing analysis using clients with a current
loan is 1098. The data are augmented with the RAFiP microfinance census and are therefore suitable for analysing
the relationship between institutional density and multiple borrowing.

3.1 | Descriptive statistics

Figure 1 shows the composition of the seven MFI categories, and Figures 2 and 3 present the regional and
rural–urban distributions (38.5% of MFIs are in rural areas and 61.5% are in urban locations). Figure 1
suggests that four main groups dominate the market. As one of the new classifications, MFCs constitute
the most extensive distribution of MFIs in the country, with 22.3% of total outlets. The distribution
provides insights into the rigorous creation of new microfinance businesses and signals the influence of
commercialised MFIs in transforming the microfinance landscape after the reclassification. At 21.4%,
RCBs are almost at par with MFCs in terms of distribution. The banks have equity-based ownership and

F I G U R E 1 Distribution of microfinance institutions in Ghana

[Colour figure can be viewed at wileyonlinelibrary.com]
EWUSIE ET AL. 7

F I G U R E 2 Regional distribution of MFIs [Colour figure

can be viewed at wileyonlinelibrary.com]

F I G U R E 3 Rural–urban distribution of MFI categories

[Colour figure can be viewed at wileyonlinelibrary.com]

provide finance for rural projects. Having been in existence since 1976, the current distribution of RCBs high-
lights the intensive penetration and growth of MFCs. CUs are the third major microfinance outlets in the
country. The sector accounts for 17.1% of institutional coverage and they are predominantly associated
with formalised professional bodies. S&Ls companies comprise 15.7% of the distribution and are mostly located
in urban areas.
The remaining three categories constitute less than a quarter of the total distribution. Compared with
disbursed loans and the penetrating activities of other major groups, Susu operators are active in the savings
sector and form 12.7% of the distribution. The money lending category is the sixth on the league table and
constitutes 9.2% of the total MFI distribution. FNGOs are not-for-profit institutions offering financial services.
They participate in rural microfinance programmes and are supported by development partners, donors, social
investors and the government to engage in projects directed at improving the lives of rural residents. They are,
therefore, not required to take deposits and provide microlending services with a social objective. Compared to
the dominance of profit-oriented counterparts, FNGOs constitute a marginal 1.6% of the distribution of MFIs in
the country. Figure 4 depicts the institutional environment and practice in terms of loan distribution across the
different categories of MFIs. The trend follows the distribution of categories in Figure 1. As suggested, the
percentage of loans disbursed by the highest to the lowest group is from the MFCs to the FNGOs,
respectively.

F I G U R E 4 MFI distribution and loans offered [Colour

figure can be viewed at wileyonlinelibrary.com]
8 EWUSIE ET AL.

Table 1 indicates the intended purpose of acquiring a loan, which suggests that the largest percentage was
requested for investments in economic activities, education and housing, and, over a quarter solicited for consump-
tion purposes. From Table 2, clients' employment background also suggests that 77% are engaged in the informal
sector, and the greatest percentage of loans (46%) was secured by clients involved in nonfarm economic activities.
Table 3 presents the sample mean values of the quantitative variables, which indicate that the average loan size is
GH¢ 2398. Additional information from the percentile distribution suggests that 99% of borrowers have loans up to
GH¢ 20 00018 while the final percentile constitutes loans of GH¢ 20 001 to GH¢ 56 000. The median amount is
GH¢ 1000. Almost half of rural borrowers have loans below GH¢ 1000, and 90% have contracted loans under GH¢
5000.19 From the table, the large standard deviation of the amount disbursed is indicative of the vast heterogeneity
in loan size. The average age for borrowers is approximately 47 years, and the average household size is 5. The
regional density of MFIs is 86, and the mean household expenditure is GH¢ 948. While borrowers have
approximately two loan contracts on average, the range suggests an upper value of four.
The rural–urban distribution of MFI client households is 32% and 68%, respectively. However, multiple borrow-
ing is prevalent in rural areas. According to the data, 52% of rural borrowers engage in multiple borrowing compared
to 48% of urban borrowers, and the relationship is statistically significant (p < 0.01). Additionally, the relationship
between MFI density and location, and MFI density and multiple borrowing is highly significant (p < 0.001).
Contingency analysis for multiple borrowing and economic activity suggests that 71% of clients in the informal
sector have multiple loans compared to 24% in the formal sector and 5% by borrowers who are currently
unemployed. However, the relationship is not significant.

TABLE 1 Purpose of loan

Reason for obtaining the loan Percent
Investment Economic activity 40.28
Education 7.32
Housing/Building 13.33
Consumption 26.02
Social function 9.39
Debt repayment 1.22
Emergency 2.00
Other 0.44

Source: RAFiP Survey, 2015.

TABLE 2 Employment activity

Current employment activity Percentage
Self-employed in agriculture (mainly food crop) 16.95
Self-employed in agriculture (mainly cash crop) 4.28
Self-employed in nonfarm enterprise 45.70
Casual worker/unprotected, unskilled 8.92
Regular/protected salaried worker (private) 6.66
Public servant 9.11
Student 1.21
Domestic worker 1.40
Retired 4.38
Other inactive 1.40

Source: RAFiP Survey, 2015.

EWUSIE ET AL. 9

TABLE 3 Summary statistics

Variables Mean
Loan packages held 1.864 (1.198)
Household expenditurea 948 (1492)
a
Returns 3164 (11633)
Loan sizea 2398 (4324)
Household size 4.948 (2.606)
Dependents 4.9489 (2.606)
MFI density 86.189 (148.207)
Age 46.9 (13)
a
Assets 21.489 (27.644)
Density of credit unions (CUs) 4.044 (1.835)
Density of microfinance companies (MFCs) 17.882 (36.791)
Density of financial non-governmental organisations (FNGOs) 1.300 (2.518)
Density of money lenders (MLs) 10.910 (20.193)
Density of rural community banks (RCBs) 13.959 (27.233)
Density of savings & loans (S&Ls) 16.832 (32.678)
Density of individual and Susu companies (Susu) 8.582 (13.636)

Note: Standard deviation in parenthesis. Source: RAFiP Survey, 2015 and Microfinance Census, 2016.
a
Amount in Ghana cedis (GH¢).

The education variable also shows that 16.9% of borrowers are not educated or have completed primary
school, 39.6% have a Middle School Leaving Certificate (MSLC) or Junior High School (JHS) qualification, and
43.5% have a Senior High School/Vocational/Technical qualification (SHS/Voc/Tech). Over 45% of clients with
MSLC/JHS qualifications have multiple loans, followed by borrowers with SHS/Voc/Tech education (39.5%). This
relationship is also not significant. Gender distribution is 64% for males and 36% for females. The data suggest that
men are more likely to engage in multiple borrowing than women. Approximately, 60% of male-headed households
have multiple loans compared to 40% of female-headed ones, and the relationship is significant at 0.01%.

3.2 | Econometric specification

Using the first available cross-sectional national survey data on microfinance clients, we conduct an exploratory
analysis of the relationship between institutional density and multiple borrowing. This analysis is conducted from a
borrower-perspective20 to determine the influence of institutional density on demand for loans using observed
information from the survey data. As previously suggested, the density of MFIs is a probable source of multiple
borrowing. It reflects the institutional environment21 and practices such as loans granted, interest rates and
repayment schedules. Therefore, we specify a demand-led probit model to determine a borrower's propensity to
overlap due to an increase in the density of institutions. Given that rural borrowers may be more inclined,22 we
further examine this relationship by interacting the location of a borrower (rural/urban) with the institutional density
variable. The probit model is specified as follows:

Pr ðMulti_borr ¼ 1jXi Þ ¼ β0 þ βi X i þ βi Y i þ εi ð1Þ

10 EWUSIE ET AL.

where Multi_borr (number of loans per client) is the binary dependent variable, Xi is the principal variable of interest
(MFI density) and Yi is a vector of regressors to control for the influence of institutional density.
From our theoretical and empirical evidence, multiple borrowing is determined by demand, supply and external
factors. Therefore, the control variables include loan amount granted, returns to investment, loan-use, and household
head's age, sex, marital status and level of education. The rest are household expenditure, number of working adults,
economic activity, dependents, location, assets and illness. We also control for regional dummies depicting underly-
ing economic variations such as differences in infrastructure and consumer prices. Their corresponding climatic
conditions also determine household exposure to shocks23 and the ultimate returns from loan investments. The error
term, εi, represents unobservable confounding factors. Table 4 presents the variable definitions and measurements.

TABLE 4 Definition and measurement of variables

Variables Definition and measurement

Multiple borrowing Number of loan contracts held by client; binary (0 Single; 1 Multiple)
Expenditurea Log of total household expenditure measures the influence of household consumption
expenditures (proxy for household income)
Returnsa Log of returns—profit from businesses controls for the influence of returns on investments
Loan size Loan size indicates the actual amount of current loan granted. It is measured as a continuous
and categorical variable to indicate the loan amount and distinct categories of amount
borrowed to determine their specific influence on multiple borrowing.
1)Log of current loan amount (continuous)
2)Indicator variable representing loan sizes (ordinal with five categories: below GH¢ 100 as
base reference; GH¢ 100–1000; GH¢ 1001–5000; GH¢ 5001–10 000; GH¢ 10 001-20 000)
Loan-use Loan use indicates the intended purpose of loan measured as a binary variable (0 Non-
productive; 1 Productive)
Household size Number of working adults over 15 years
Dependents Number of dependents in the household
MFI density The density of MFIs, measured by the number of MFIs in a region—a possible source of
multiple borrowing and reflects institutional environment and practices such as the
determination of loan sizes, interest rates and repayment conditions
CU, MFC, ML, RCB Five variables representing the density of a particular type of MFI and a measure of a specific
and S&L institutional environment
Age Age in years of household head (nominal with four categories - Lower Working Age (18–34),
Upper Working Age (35–49), Pre-Retirement (50–64)
Retired (above 65—base category)
Female Proxy for the gender of household head: binary (0 male; 1 female)
Employment status Types of economic activity (Nominal with three categories—unemployed clients as the base
reference, informal sector and formal sector)
Location Location of a borrower; binary (0 urban, 1 rural—indicates the underlying poverty levels)
Education Levels of educational attainment (ordinal-measured on a scale of 1 to 3 categories—None/
Primary (base category); MSLC/JHS; SHS/Vocational/Technical)
Marital status Marital status of the household head (nominal with three categories—never married, married
and not married; base category-never married)
EWUSIE ET AL. 11

TABLE 4 (Continued)

Variables Definition and measurement

Region Region of borrower's residence is a nominal variable indicating the 10 administrative regions
with their specific underlying economic and seasonal variations which influence the level of
profits on investments; base- Greater Accra)
Assetsa Log of total household assets measures the level of household assets
Health-shock Indicator of idiosyncratic shock suggesting distress borrowing, binary (0 No; 1 Yes)

Abbreviations: CU, credit unions; MFC, microfinance companies; MFI, microfinance institutions; ML, money lenders; RCB,
rural and community banks; S&L, savings and loans.
Source: RAFiP Survey, 2015.
a
Figures are in Ghana cedis (GH¢).

From Equation 1, the model to be estimated is given as follows:

Pr ðMulti_borr ¼ 1jxÞ ¼ β0 þ β1 MFI_dens þ β2 loc þ β3 MFI_dens#loc þ β4 Lnsize þ β5 loan_cat þ β6 rturns þ β7 lnuse

þ β8 lnhhexp þ β9 hhsize þ β10 agey þ β11 emp_status þ β12 female þ β13 edu þ β14 lnassets
þ β15 marstat þ β16 depend þ β17 health_shock þ β18 region þ εi ð2Þ

where MFI_dens is the total density of MFIs and MFI_dens#loc examines the interdependent relationship between
MFI density and location. Equation 3 examines the interaction effects of location and the density of a particular type
of MFI on the probability of multiple borrowing. From an exploratory perspective, this model is estimated indepen-
dently for the five categories with a high distribution and active credit delivery.

Pr ðMulti_borr ¼ 1jxÞ ¼ β0 þ β1 MFIcat þ β2 loc þ β3 MFIcat#loc þ β4 Lnsize þ β5 rturns þ β6 lnuse þ β7 lnhhexp þ β8 hhsize
þ β9 agey þ β10 emp_status þ β11 female þ β12 edu þ β13 lnassets þ β14 marstat þ β15 depend
þ β16 health_shock þ β17 region þ εi ð3Þ

where MFIcat is the density of the MFI categories (RCBs, MFCs, CUs, S&Ls and MLs) and MFIcat#loc measures the
interdependency of the density of MFI category and location.

4 | RESULTS

Overall, the incidence of multiple borrowing in the microfinance market is approximately 35%, as shown in Figure 5.
Hence, more than a third of borrowers have two or more loans from the same or a different provider. Of the total,
approximately 15% of borrowers have two loans, 5% have three portfolios, and the remaining 15% have four or
more loans. The analysis suggests that multiple borrowing exists in Ghana, and over a third of borrowers engage in
the practice. At 35%, the incidence is within the 20%–40% experienced in moderate parts of India at the onset
12 EWUSIE ET AL.

FIGURE 5 : Incidence of multiple borrowing in Ghana [Colour figure can be viewed at wileyonlinelibrary.com]

TABLE 5 Institutional density and multiple borrowing

(1) (2) (3) (4)

MFI density—average MFI density— MFI density— MFI density—categorical

Variables loan categorical loan average loan (region) loan (region)

MFI Density 0.000203 0.000247* 0.000707*** 0.00078***

Location 0.0873*** (0.0335) 0.0979*** (0.0344) 0.00565 (0.0386) 0.00332 (0.0384)
MFI Density & 0.000620** 0.000611** 0.000569** 0.000572**
Location
Returns 5.05e-06* (2.64e-06) 8.94e-06*** (3.32e-06) 3.37e-06 (2.17e-06) 4.62e-06* (2.62e-06)
Current loan 0.0115** (0.0551) 0.0103* (0.0564)
amount
Household 0.0257* (0.0135) 0.0238 (0.0146) 0.0195 (0.0133) 0.0191** (0.0133)
expenditure
Female 0.0571* (0.0306) 0.0573* (0.0318) 0.0549* (0.0307) 0.0545* (0.0306)
Married 0.112 (0.0724) 0.104 (0.0745) 0.0834 (0.0751) 0.0776 (0.0743)
Not married 0.113 (0.0787) 0.115 (0.0811) 0.0907 (0.0808) 0.112 (0.0801)
Household 0.0215** (0.0102) 0.0284*** (0.0107) 0.0205** (0.00984) 0.0203** (0.00982)
size
Dependents 0.0127 (0.0103) 0.0155 (0.0107) 0.0118 (0.0102) 0.00979 (0.0102)
EWUSIE ET AL. 13

TABLE 5 (Continued)

(1) (2) (3) (4)

MFI density—average MFI density— MFI density— MFI density—categorical

Variables loan categorical loan average loan (region) loan (region)

Informal 0.0252 (0.0702) 0.0300 (0.0717) 0.0408 (0.0682) 0.0359 (0.0678)

sector
Formal sector 0.0138 (0.0751) 0.0169 (0.0770) 0.0512 (0.0729) 0.0476 (0.0724)
MSLC/JHS 0.0155 (0.0420) 0.00753 (0.0437) 0.0305 (0.0405) 0.0296 (0.0407)
SHS/Voc/ 0.0170 (0.0440) 3.02e-05 (0.0458) 0.00318 (0.0433) 0.00398 (0.0435)
Tech
Lower working 0.0629 (0.0631) 0.0694 (0.0655) 0.0468 (0.0633) 0.0574 (0.0632)
age
Upper working 0.199*** (0.0511) 0.214*** (0.0523) 0.200*** (0.0524) 0.203*** (0.0516)
age
Preretirement 0.143*** (0.0487) 0.133*** (0.0501) 0.145*** (0.0492) 0.144*** (0.0485)
age
Health status 0.00491 (0.0404) 0.0139 (0.0414) 0.0204 (0.0383) 0.0185 (0.0382)
Western 0.0817 (0.0734) 0.0805 (0.0734)
region
Central region 0.159** (0.0712) 0.0765 (0.0532)
Volta region 0.178** (0.0868) 0.262*** (0.0662)
Eastern region 0.141* (0.0820) 0.0696 (0.0625)
Ashanti region 0.126 (0.0875) 0.222** (0.104)
Brong-Ahafo 0.392*** (0.0636) 0.311*** (0.0464)
region
Northern 0.0259 (0.0771) 0.0416 (0.0606)
region
Upper East 0.157 (0.112) 0.0776 (0.104)
region
Upper West 0.138 (0.0901) 0.0672 (0.0707)
region
GHC 100– 0.0720* (0.0390) 0.0735** (0.0367)
1000
GHC 1001– 0.0140 (0.0407) 0.0186 (0.0394)
5000
GHC 5001– 0.0865 (0.0820) 0.0816 (0.0756)
10 000
GHC 10 001– 0.354*** (0.137) 0.306** (0.126)
20 000
Assets 0.0108 (0.0235)

Note: N = 1098; sample is restricted to MFI borrowers with a current loan. Marginal effects and mean interaction effect
reported; —discrete change from the base level reported for factor variables; robust standard errors in parentheses. Joint
significance test [chi2(1) = 4.30; Prob > chi2 = 0.0382]. Robustness diagnostics for Models 3 and 4, respectively: AIC 1319.192
BIC 1464.228; AIC 1247.803 BIC 1411.022.
***
p < 0.01.
**
p < 0.05.
*
p < 0.1.
14 EWUSIE ET AL.

of the over-indebtedness crisis (Krishnaswamy, 2007). The results confirm the suspicion that multiple borrowing
exists, and the unprecedented increase in the number of microfinance clients involves some degree of
cross-borrowing.
From Table 5, the four models present results of the MFI density analyses, which control for the current loan
amount and its categorical indicators depicting a range of loan sizes.24 Due to the trade-off between location and
regional dummies, Models 1 and 2 are estimated without regional influences, while Models 3 and 4 control for
regional economic variations which influence the choice of MFI location and loan absorption capacity. On our
principal investigation, all four models suggest that as an independent variable, an increase in MFI density is less
likely to lead to multiple borrowing. The results indicate that the density variable responds to regional variations as
expected. Its coefficient triples and the variable gains a strong significance under Models 3 and 4.25 With the trade-
off, a confirmatory joint significance test indicates that the link between MFI density and multiple borrowing
depends on the borrower's location. Hence, an increase in MFI density in a rural area increases the probability of
multiple borrowing by 0.06 percentage points.
Of the control variables, the average current loan and two categories of loan size suggest a positive and signifi-
cant relationship. For instance, the range of GH¢100–1000 engenders a propensity to overlap by seven percentage
points. Similarly, an increase in household expenditure triggers a positive tendency towards multiple borrowing by
two percentage points. Although an increase in investment returns makes a borrower less likely to engage in multiple
borrowing, its influence is almost negligible. The number of working adults in a household is also negatively associ-
ated with overlapping tendencies, and borrowers in the upper and preretirement working ages have a strongly signif-
icant relationship with multiple borrowing. Education, economic activity, health status and dependents are not
significant.
Table 6 presents results for the locational density of MFI categories and multiple borrowing. The results suggest
that it is more likely for a rural borrower to engage in multiple borrowing in response to an increase in the density of
the five categories of MFIs, although the outcome for RCBs is not significant. Rural borrowers have a propensity to
respond to an increase in the number of MLs in the locality by 0.43 percentage points. An increase in MFC density
also attracts a likelihood of multiple borrowing by 0.37 percentage points, and rural clients of CUs and S&Ls have a
proclivity of 0.26 and 0.24 percentage points, respectively.

TABLE 6 Locational density of MFI category and multiple borrowing

Density of MFI type

Model Type of microfinance category Density of MFI type Location and location

1 Money lenders (MLs) 0.00127 (0.000971) 0.0939*** (0.0327) 0.00432** (0.00179)

2 Microfinance companies (MFCs) 0.000982** (0.000449) 0.0844** (0.0328) 0.00371** (0.00151)
3 Credit unions (CUs) 0.000755 (0.000695) 0.0942*** (0.0335) 0.00263** (0.00121)
4 Savings and loans (S&L) 0.00101* (0.000539) 0.0952** (0.0325) 0.00243** (0.00123)
5 Rural and community banks (RCBs) 0.000263 (0.000751) 0.1110*** (0.0329) 0.00141 (0.00125)

Note: N = 1098; sample is restricted to MFI borrowers with a current loan. Mean interaction effects reported; robust standard
errors in parentheses. Each regression for MFI categories includes all the control variables used in the institutional density
analysis.
*
p < 0.1.
**
p < 0.05.
***
p < 0.01
EWUSIE ET AL. 15

5 | M F I D E N S I T Y A N D M U L T I P LE BO R R O W I N G

This study conducts a primal analysis to determine whether the density of MFIs can influence clients' borrowing behav-
iour and examines rural borrowers' vulnerability to an increase in the number of institutions in their locality.26 The results
suggest that as an independent variable, an increase in institutional density is less likely to induce multiple borrowing.
One reason could be that, contrary to the expectation of an increase in MFI density leading to multiple borrowing, the
actual response may depend on existing levels of concentration. The outcome seems to portray that perception about
competition, institutional growth, and multiple borrowing are convictions generated from the ‘growth surge’, as
suggested by Rhyne and Otero (2006), and were mostly not data-driven. Hence, for an increasing number of institutions
to engender multiple borrowing, affected markets were either at the brink of saturation or already saturated (Bateman &
Chang, 2012). This implies that the market may not be saturated or at the verge of an overflow.
Another justification may be attributed to the mode of capitalisation. Currently, MFIs borrow from commercial
investment vehicles (Lützenkirchen & Weistroffer, 2012; RAFiP, 2016) and may be cautious of their market penetration
or be more circumspect with credit delivery. Hence, the number of institutions, per se, might be less threatening but
would depend on the actual supply of credit. Where lending practices of an additional institution do not effectively lead
to a profusion of credit, an increase in institutional density may not engender multiple borrowing. As suggested by fur-
ther analysis, the link between institutional density and multiple borrowing depends on the borrower's location.
Given the precarious economic circumstances of vulnerable rural borrowers, they are more likely to overlap due
to an increase in institutional density. This exploratory outcome is critical because, although it does not suggest
repayment challenges, it demonstrates the vulnerability of rural clients to a proliferation of MFIs. The result is also
consistent with the exploratory analysis of the Centre for Micro Finance's (CMF) study on borrowing in Andhra
Pradesh. This study suggests that multiple borrowing is widespread among the rural poor, and 84% of households
had two or more loans from the same or a different provider (Johnson & Meka, 2010). Hence, given that institutional
density may not independently trigger multiple borrowing, there may be some underlying factors, which increase the
probability of multiple borrowing for rural borrowers.
Factors contributing to the susceptibility of rural clients could emanate from the demand and supply
perspectives. On the demand side, a significant trigger is the influence of underlying economic conditions, such as
low and unstable incomes. As suggested by the study, rising household expenditures and the negligible influence of
returns on investments contribute to households' overlapping tendencies. Although borrowing may be intended for
productive investments, rural clients' unstable economic activities could imply that the loans would most likely be
channelled into consumption smoothing. This scenario is corroborated by evidence from the data, which suggests
that over a quarter of loans is taken for consumption purposes. Arguably, the situation could result in opportunistic
borrowing as suggested by Gonzalez (2008). Therefore, given the predominant poverty incidence in rural areas, an
increase in MFI density may induce an overleveraging reaction. However, the pulling triggers may not be mutually
exclusive of the push factors.
In a poverty-prone environment, the phenomenon could be aggravated where MFIs are capable and willing to
supply the much sought-after credit, which could result in opportunistic lending. Conversely, rigid institutional pro-
tective measures could also have a counter-productive effect. The results suggest that the lowest category of loan
amount granted is positively related to multiple borrowing. This evidence aligns with borrowers' reference to their
small loan sizes, tight repayment schedules and high interest rates (Schicks, 2011). Since half of rural borrowers have
loans within the lowest category, there could be cases of liquidity constraints. Therefore, borrowers who invest in
income-generating activities, could have legitimate reasons to take on additional loans due to their small loan sizes
and the unpredictable economic environment, which may not support the growth and sustainability of economic
activities to yield the expected returns.
The preceding scenario suggest that when such favourable conditions exist on the supply side coupled with
equally permitting underlying conditions on the demand side, more rural borrowers would be inclined to indulge in
multiple borrowing, which can pose a severe risk to borrowers and institutions alike. This positive tendency for rural
16 EWUSIE ET AL.

borrowers has a significant practical policy implication given that rural dwellers are economically vulnerable, on
average, and sensitive to the penetration and lending activities of MFIs. Crucially, the COVID-19 pandemic, which
has inordinately affected the majority who are self-employed, may also contribute to increased borrowing to support
businesses. However, since there is a chance of such loans being channelled into consumption given the uncertain
economic climate, there is a possible risk of future repayment problems and debt traps.

5.1 | The density of MFI categories and multiple borrowing

Prior to the explosion of microfinance, Susu, CU and Money Lending initiatives for providing saving and
borrowing opportunities had been long recognised in Ghana. The microfinance census suggests that the Otsuu Oyee
Susu Services in the Ga Central community of Greater Accra was founded 70 years ago. Additionally, the Wa
Community Credit Cooperative Union and St. Joseph's Credit Union in Jirapa have been active for 50 and 60 years,
respectively. At the onset of the microcredit intervention for poverty reduction, FNGOs granted subsidised loans
needed by borrowers on low incomes and existing RCBs also provided credit to rural borrowers with government
support. With time, S&Ls companies also bourgeoned, and the drive of commercialisation resulted in a considerable
expansion of the microfinance market, which proliferated with a significant number of profit-oriented MFCs.
Given the diversity of MFIs' operational methodology and ethos, there is a possibility that the type of institution
could affect the likelihood of multiple borrowing. The findings suggest that an increase in the density of individual
categories of MFIs may enable conditions of multiple borrowing for rural borrowers. As the first analysis of its kind,
implications for individual MFI categories are drawn from the Ghanaian context; especially, the presence and
percentage of loan distribution by each MFI type. It has become apparent that as the microcredit social objective
swiftly yielded to the dominance of commercialisation, most FNGOs had no choice but to become financially
sustainable or fold up due to the removal of subsidies and donor support. Hence, they provide 1.6% of the total loan
distribution. The Susu category is also savings-oriented and advances only 2% of loans. Consequently, five MFI
categories with a sizeable participation in the microcredit market were analysed, and the discussion focuses on the
four with a significant outcome for multiple borrowing.
The results suggest that the money lending category attracts a positive tendency from rural borrowers.
Money lending is an antiquated practice in the country, and before microcredit was formalised, informal MLs were
the main source of credit for people who lacked access to formal credit institutions. With the proliferation of
microlending activities, individual and commercial money lending operations flourished. Their modus operandi for
credit provision is less formalised, and they are active in credit provision. Due to the relatively less rigorous lend-
ing operations, or in the case of individual lenders, a near absence of formality and procedures for accessing
credit, rural borrowers in urgent need of additional loans could easily approach MLs for extra capital. Anecdotes
even suggest that cash-strapped workers in the formal sector, patronise the services of money lenders to meet
their urgent financial needs. Therefore, should the need arise, it is inevitable that an additional provision of a
money lending service in a rural area, would increase a borrower's propensity to approach the readily accessible
source.
MFCs constitute the next category which has a positive link with rural borrowers' tendency to overlap. Originally,
the microcredit panacea was predicated on the argument of usurious interest rates charged by money-lending opera-
tors. Subsequently, the availability of an ‘attractive’ and ‘lenient’ alternative to punitive credit contract schemes
resulted in the growth of MFCs. Unsurprisingly, the census data suggest that commercial MFCs have the largest share
of the microcredit market. Their intense growth could create opportunities for multiple borrowing, as demonstrated by
‘opportunistic’ lending in the Bolivian scenario (Armendariz & Morduch, 2010). Active expansion in this category may
also provide opportunities, which rural borrowers can take advantage of, as suggested by the principal-agent theory.
Therefore, owing to intense competition among MFCs as they penetrate the market, specific interests and operations
of individual institutions might enable their borrowers to have opportunities to overlap.
EWUSIE ET AL. 17

CUs and S&Ls companies have a similar lure for rural borrowers seeking additional loans. The analysis
demonstrates that the multiple borrowing propensities for rural borrowers in response to an increase in the density
of CUs or S&Ls are almost the same. The loan distribution illustrates that CUs and S&Ls have a similar penetration
and constitute the third and fourth on the league table. Having been in operation for over five decades, CUs have
participated in the microfinance market for an extended period and have a positive presence due to their familiarity.
S&Ls outlets have also forged an appreciable stake in the microfinance market. Their activities are almost at par with
CUs, as indicated by their relative density and loan distribution. Therefore, given the nature of operations and equally
sizeable loan coverage, the evidence suggests that an increase in the active participation of these two categories is
more likely to increase the propensity of multiple borrowing for rural clients.
This study contributes vital knowledge on microfinance institutions and borrowing behaviour and has crucial
policy implications from its preliminary perspective. However, it is influenced by data characteristics and does not
imply causality. Particularly, the essence of individual, institutional category results is based on and derives only from
their disparate analyses and not intended to be comparative. Overall, its relevance emanates from the evidence that
multiple borrowing exists in Ghana as suspected, and over a third of borrowers are involved. It could, therefore, be
insidious if its presence and intensity are unknown and institutions have no information on the extent of
over-leveraging clients. Currently, there is no coordinated effort among institutions to synchronise information on
cross-borrowers to facilitate risk monitoring and evaluation.
It is also probable that since the caveat of multiple borrowing was issued a decade ago, the problem could have
intensified to its present level. It may be an even greater challenge with future complex repercussions if there is no
evidence on the phenomenon to initiate its monitoring and moderation. In the absence of such vital evidence,
institutions' sense of security and sustainability may be compromised, and depositors' livelihoods may be severely
disrupted, as already witnessed. This initial research helps institutions to begin the process of tracking and tracing
overlapping borrowers to determine their credit-coping capacity. Most importantly, it should enable institutions to
assess their operations and practices and take proactive steps to avoid a possible debt trap for vulnerable borrowers.

6 | C O N CL U S I O N

In this paper, we ask whether the significant increase in the number of microfinance clients embeds some degree of
multiple borrowing and determine the possible nexus between MFI density and multiple borrowing. Given the
existing poverty conditions of rural borrowers, we also investigate whether there is a justifiable concern regarding
the potential tendency of vulnerable rural clients to succumb to the availability of borrowing opportunities.
Additionally, since the industry in Ghana comprises identified categories, we enquire whether the possible influence
of institutional growth can be distinguished by the MFI type, given that these categories operate differently.
From the analyses, the incidence of multiple borrowing in Ghana is 35%, suggesting that over a third of
borrowers have more than one loan either from the same or a different provider. The density analysis also suggests
that while an increase in institutional density may not independently engender multiple borrowing, rural clients are
more likely to overlap. For the MFI type, rural clients of four categories with a high presence and active loan
distribution are more likely to engage in cross borrowing given an increase in institutional density. These are MLs,
MFCs, CUs and S&Ls companies.
Our evidence confirms the earlier assertion that multiple borrowing exists, and with a third of borrowers
involved, it can be a real challenge. However, the indication that institutional density is less likely to influence
multiple borrowing suggests that the market may be currently ‘expansive’. Nonetheless, given that over
three-quarters of borrowers are in the informal sector, the current uncertain climate arising from the COVID-19
pandemic may provide more stimulus for initial or additional borrowing to smooth consumption or to support
struggling businesses. Hence, the caveat is directed at vulnerable borrowers, who may have a genuine need for an
additional loan to supplement an initial small loan or simply engage in opportunistic borrowing.
18 EWUSIE ET AL.

In the midst of a strident commercialised market, borrowers' economic background provides a motivation to
maximise opportunities in the lending market. While the evidence does not suggest borrowing challenges, it calls for an
urgent need for institutions to critically assess the credit adequacy, number of loan portfolios held, and repayment capac-
ity of their rural clients. Information sharing on borrowers is also an urgent imperative, which should proactively highlight
over-leveraged clients who may not effectively manage their credit absorption capacity. This vital institutional collab-
oration could prevent rural clients' borrowing proclivities from deteriorating to safeguard their vulnerable livelihoods.

ACKNOWLEDGEMEN TS
We gratefully acknowledge the thoughtful comments and contributions of two anonymous reviewers. We also thank
Mathew Kobina Ewusie, Victoria Mensah, Jacob Bart-Plange, Anthony Annan-Prah, Francisca Simmons, Gertrude
Bibi Annor-Quarshie, Frank Edwards-Idun, Cecilia Attara-Amoateng, Morgan Delphinis, Anthony Simmons, Hiram
Laud-Anderson, Augustine Sagoe and Francis Benyah for their support, encouragement and insightful feedback.

FUND ING
The authors declare that they did not receive any funding for this work.

DATA AVAI LAB ILITY S TATEMENT

The data that support the findings of this study are available from the Ministry of Finance and Economic Planning,
Ghana.

ORCID
Ewura-Adwoa Ewusie https://orcid.org/0000-0001-5450-1087
Samuel Kobina Annim https://orcid.org/0000-0002-3449-0912
William Brafu-Insaidoo https://orcid.org/0000-0002-1861-5498

ENDNOTES
1
A social objective that attracted international support (Balkenhol, 2007; Bateman & Chang, 2012).
2
Focus on financial survivability of institutions (Morduch, 2000; Otero & Rhyne, 1994; Robinson, 2001).
3
International Monetary Fund.
4
Institutional growth simply refers to the rapid expansion of MFIs.
5
The term, which means having more than one loan from the same or different provider, derives from borrowing and is
synonymous with overlapping, cyclical and cross-borrowing (Khandker et al., 2013; Maurer & Pytkowska, 2011;
O'Loughlin, 2006).
6
Not-for-profit financial organisations.
7
These were implemented in 2011 under the Banking Act 2004 (Act 673) and Non-bank Financial Institutions Act 2008
(Act 774); see Ghana Microfinance Institutions Network (GHAMFIN, 2013) for an exposition on the institutional
classification.
8
DKM Microfinance is an MFI which collapsed in 2016. https://www.ghanaweb.com/GhanaHomePage/NewsArchive/
DKM-saga-Customers-commit-suicides-over-unpaid-monies-Association-704293
9
https://www.bog.gov.gh/privatecontent/Public_Notices/
10
https://www.myjoyonline.com/news/national/todays-frontpages-tuesday-july-28-2020/
11
Extreme poverty increased by 200, 000 people.
12
Refers to the number of MFI programmes in a village.
13
To the best knowledge of the researchers.
14
Based on the distribution of MFI categories, which underlies the density and loan activity, we focus on five MFIs (MFCs,
RCBs, CUs, S&Ls and MLs). Traditionally, Susu adopts a savings-led model to microfinancing, and hence, has a low distri-
bution of loans. Activities of FNGOs have also dwindled with active commercialisation and are evident in their relatively
EWUSIE ET AL. 19

low numbers and lowest percentage of loan distribution. Due to the nature of the first available data, the analysis does
not imply causality.
15
See Chichaibelu and Waibel (2017) for a theoretical exposition.
16
In the over-indebtedness study on Ghanaian micro borrowers and as earlier highlighted by Gonzalez (2008).
17
Krishnaswamy (2007) provides an overview of competition and multiple borrowing.
18
Figure quoted in Ghana cedis (average rate for 2015: USD1 = GH¢3.80).
19
Seven observations constitute loans beyond GH¢ 20 000. The study uses the truncated upper limit of GH¢ 20 000 for
the loan amount variable to reflect the fact that half of the distribution possess loans of GH¢ 1000, and 90% of
borrowers have loans under GH¢ 5000.
20
Both demand and supply factors determine the level of borrowing. However, given the focus of the first cross-sectional
survey data on MFIs, this study lacks sufficient observed client-level supply-side variables to facilitate an impact analysis
of institutional density and multiple borrowing or estimate the comparative effects of individual operational activities of
MFI categories.
21
As indicated by the composition and suggested growth of institutions, notably, the high number of MFCs, and the
differences in loan distribution by MFI categories.
22
Johnson and Meka (2010) and as indicated by the descriptive analysis that there are more rural borrowers with multiple
loans. For probit interaction effects (see Norton, Wang & Ai, 2004).
23
Controlling for underlying regional and economic variation is vital due to regional differences in infrastructure and living
standards as determined by prevailing income and prices. Recognising climatic variations is also crucial for returns in areas
where economic activities are predominantly agrarian. Nonetheless, the data suggest that approximately 79% of
borrowers engage in nonfarm activities and clients engaged in agriculture took less than a quarter (21%) of loans. The
regional infrastructure and economic conditions expected to affect business profits is also a proxy for both demand and
supply-side variables (Khandker et al., 2013).
24
To minimise the possibility of an omitted variable bias from the demand perspective, we consider a host of control
variables. The omission of the intended loan-use predictor is due to its collinearity with clients' employment activity.
25
In Models 3 and 4, which control for regional variations in income and prices, the predictive power of household
expenditure rather than assets may be attributed to the revelation that over a quarter of loans is sourced for consump-
tion purposes; an immediate need that may not be readily resolved by resorting to modest household-based assets. This
point reinforces Schicks' (2011) observation regarding the modest asset-base of micro borrowers in Ghana. From the
robustness diagnostics, Model 4 is preferred.
26
For the discussion, we focus on institutional density. Other covariates control for the relationship between institutional
density and multiple borrowing.

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How to cite this article: Ewusie, E.-A., Annim, S. K., & Brafu-Insaidoo, W. (2021). The density of microfinance
institutions and multiple borrowing in Ghana: Are rural borrowers vulnerable? Journal of International
Development, 1–21. https://doi.org/10.1002/jid.3551