A Study on Overlapping in Microcredit

Submitted by
Prodip Roy
Student ID: 2022220100013
Semester: Fall
Course Code: MDS 5211(Spring 2022)
Program Name: Master of Development Study

Name of the Department: The Department of Economics

Southeast University
251/A and 252
Tejgaon Industrial Area, Dhaka 1208, Bangladesh
February 15, 2024
CERTIFICATION ................................................................................................................................................ 2
DECLARATION OF AUTHORSHIP ....................................................................................................................... 3
ACKNOWLEDGMENTS ...................................................................................................................................... 4
ABSTRACT: ....................................................................................................................................................... 5
CHAPTER 1: INTRODUCTION ............................................................................................................................ 6
1.1 BACKGROUND................................................................................................................................................... 6
1.2 RESEARCH QUESTIONS ....................................................................................................................................... 7
1.3 OBJECTIVES OF THE STUDY .................................................................................................................................. 7
1.4 SIGNIFICANCE OF THE STUDY................................................................................................................................ 7
1.5 SCOPE AND LIMITATIONS .................................................................................................................................... 8
1.6 METHODOLOGY ................................................................................................................................................ 8
CHAPTER 2: LITERATURE REVIEW: PREVIOUS STUDIES RELATED TO MICROCREDIT OVERLAPPING .................. 9
2.1 IMPACT ON CLIENTS: .......................................................................................................................................... 9
2.2 IMPACT ON MFIS: ............................................................................................................................................. 9
2.3 SECTOR-WIDE IMPLICATIONS: ............................................................................................................................ 10
CHAPTER 3: CONCEPTUAL FRAMEWORK ....................................................................................................... 10
CHAPTER 4: CROSS-SECTOR COLLABORATIONS IN OVERLAP IN MICROCREDIT .............................................. 10
4.1 CHALLENGES................................................................................................................................................... 11
4.2 OPPORTUNITIES .............................................................................................................................................. 11
CHAPTER 5: IMPACT OF OVERLAPPING IN MICROCREDIT EFFECTIVENESS: A DOUBLE-EDGED SWORD .......... 11
5.1 POTENTIAL BENEFITS: ....................................................................................................................................... 11
5.2 POTENTIAL DRAWBACKS:................................................................................................................................... 11
CHAPTER 6: CASE STUDIES ............................................................................................................................. 12
CHAPTER 7: RECOMMENDATIONS ................................................................................................................. 12
7.1 POLICY IMPLICATIONS....................................................................................................................................... 12
7.2 BEST PRACTICES FOR COLLABORATIONS: EXAMPLES OF SUCCESSFUL COLLABORATIONS: ................................................. 13
7.3 FUTURE RESEARCH DIRECTIONS.......................................................................................................................... 13
CHAPTER 8: CONCLUSION .............................................................................................................................. 13
8.1 SUMMARY OF FINDINGS ................................................................................................................................... 13
8.2 CONTRIBUTIONS TO EXISTING KNOWLEDGE .......................................................................................................... 13
8.3 IMPLICATIONS FOR PRACTICE ............................................................................................................................. 13
8.4 FINAL THOUGHTS ............................................................................................................................................ 13

Table 1: Sampling Procedure................................................................................................................. 8

Table 2: ................................................................................................................................................. 10

Figure 1: Case Study picture. ............................................................................................................... 12

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Certification
This is to certify that Student ID: 2022220100013, Semester Spring: 2022, has prepared this
thesis paper entitled ‘A Study on Overlapping in Microcredit’: Perspective from Disaster-
prone rural Bangladesh’ under my supervision. This is an original piece of research work. I
do hereby approve the style and content of the project. This is for the partial fulfillment of the
requirement for the Degree of Master of Development Studies, Southeast University, Dhaka-
1213.

Supervisor
Dr. Md. Abdul Hakim
Professor
Department of Economics
Southeast University

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Declaration of Authorship
I am Prodip Roy, declare that this thesis titled, ‘A Study on Overlapping in Microcredit’:
Perspective from Disaster-prone rural Bangladesh’ and the work presented in it is my own.
I confirm that:
• This work was done wholly or mainly while in candidature for a research degree at this
University.
• Where any part of this thesis has previously been submitted for a degree or any other
qualification at this University or any other institution, this has been clearly stated.
• Where I have consulted the published work of others, this is always clearly attributed.
• Where I have quoted from the work of others, the source is always given. With the
exception of such quotations, this thesis is entirely my own work.
• I have acknowledged all main sources of help.
…………………………
Student’s Name: Prodip Roy
Student’s ID: 2022220100013
Course Title: Thesis
Course Code: MDS 5211
Semester: Spring-2022
Program Name: Master of Development Studies (MDS)
Name of the Department: The Department of Economics
Date of Thesis Paper Submission: 15/02/2024

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Acknowledgments
The author wishes to acknowledge all commend and gratitude to “Almighty Allah”, the great,
gracious merciful and supreme ruler of the universe, who enabled the author to complete the
research work successfully for the degree of Master of Development Studies, Southeast
University, Dhaka1213. The author expresses his abstruse indebtedness and sincerest gratitude
to his reverend teacher and research supervisor, professor Dr. Md. Abdul Hakim, Department
of Economics, Southeast University, Dhaka, for his scholastic supervision, valuable
suggestions, solitary instructions, constructive criticism, constant encouragement, and kind
cooperation in carrying out this research. For his deep interest in the work, continuous
inspiration, valuable suggestions and affectionate feeling throughout the research period and
writing up of the thesis.

We would like to thank all school’s headmasters, teachers, and students from the Department
of Economics, Southeast University for their contribution from data collection to completion
of the study.

Finally, the author also owes special debts of gratitude to his beloved parents and family
members for their endless love and blessing, inspiration and encouragement, valuable advice
and a lot of sacrifices in all respect throughout his academic life that paved the way of his time
in this University.

Prodip Roy

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Title: A Study on Overlapping in Microcredit: Perspective from Disaster-
prone rural Bangladesh

Abstract:
Microcredit has been a strategic option in alleviating mass poverty and empowering poor
people for about four decades, especially in the least developed countries. With an increasing
coverage microcredit is becoming the largest poverty intervention programme on the globe.
The programme has been attaining different economic and social objectives but operational
issues like overlapping have been causing controversy for the programme in many countries,
like Bangladesh. One emerging aspect that requires comprehensive exploration is the
phenomenon of overlapping in microcredit, where multiple stakeholders from diverse sectors
intersect to contribute to the delivery of financial services.
This paper looks into the nature, causes, and consequences of overlapping in microcredit of
marginalized communities. It also proposes the concept of a simple information system that
may help minimize the intensity and extent of this operational difficulty that microcredit has
been facing in countries like Bangladesh.

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Chapter 1: Introduction
1.1 Background
Microfinance operates a crucial role in financial inclusion of marginalized communities in
remote areas in where the formal banks do not operate. Moreover, microfinance provides
collateral-free loan without any collateral documents. Thus make information asymmetry in
which overlapping in microcredit occurs. As microfinance operates in remote areas with
marginalized community, so the overlapping in microcredit often and mostly happens in
marginalized communities. Disaster-prone marginalized communities are more prone to
overlapping in microfinance. Disaster-prone communities often face economic hardship and
unstable income.
Overlapping in Microcredit: A Complex Issue with Varied Impacts: Overlapping in microcredit
refers to the phenomenon where borrowers access loans from multiple microfinance
institutions (MFIs) simultaneously. Overlapping in microcredit can exacerbate this
vulnerability by leading to over-indebtedness, especially after disasters when repayment
becomes difficult. This can trap families in a cycle of debt, hindering their ability to recover
and improve their living standards. Types of Overlapping: Multiple MFIs: Borrowers take
loans from different MFIs operating in the same area. Multiple branches: Borrowers take loans
from multiple branches of the same MFI. Staff loans: Borrowers get loans from different staff
members within the same branch. Household overlap: Multiple members of a household access
loans from different MFIs or branches, often with combined income assessment.
Positive impact: Access to larger credit amounts for bigger investments. Diversification of loan
terms and conditions. Increased competition among MFIs leading to better services.
Negative impact: Overshadowing debt burden if repayment capacities are not properly
assessed. Risk of default due to multiple loan commitments. Difficulty in tracking borrowers
and assessing creditworthiness accurately. Potential exploitation by borrowers seeking easy
credit.
Factors influencing overlapping: Limited access to formal credit: Borrowers might seek loans
from multiple MFIs due to insufficient options. Information asymmetry: Lack of transparency
or data sharing between MFIs can facilitate overlapping. Competition between MFIs:
Aggressive marketing strategies might encourage borrowers to seek loans from multiple
sources. Borrower behavior: Some borrowers might strategically exploit loopholes or seek easy
credit, leading to overlapping.
One side with the expectation that the poor people would be able to improve their household
income through proper utilization of credit. And other side, not allowing more than one loan
and with more money as credit from one or different sources that the borrower household is
incapable of using in income-generating activities. Overlapping in microcredit can exacerbate
this vulnerability by leading to over-indebtedness, especially after disasters when repayment
becomes difficult. This can trap families in a cycle of debt, hindering their ability to recover
and improve their living standards. Fenton et al. (2017) observed that microcredit increased the
borrowers’ adaptation capacity to cope up with climate change and reduced the sensitivity of
environmental hazards in Bangladesh. Similarly, Parvin and Shaw (2013) indicated that
microcredit assisted poor borrowers in recovering their income after a disaster.

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This women in the study live in the bank of the Jamuna River. Because of flood and river
erosion, these women often borrows money for upright their income and they kept borrowing
because of the tiny size of the loans.
One side with the expectation that the poor people would be able to improve their household
income through proper utilization of credit. And other side, not allowing more than one loan
and with more money as credit from one or different sources that the borrower household is
incapable of using in income-generating activities.
These no documentary collateral and not allowing more money what they need lead to
microcredit overlapping and make hiding information about current loan(s) is easier in getting
future loans within the microcredit system. This paradox in the conceptual model of
microcredit is an aspect that must be managed in its operational model in order to attain the
objective of microcredit. However, the microcredit operation has failed in managing this issue
in countries like Bangladesh. In this context, the following questions can logically be raised on
whether microcredit support increases the health care expenditure of the male fish farmers in
Bangladesh.
1.2 Research Questions
So, the question logically can be raised:
i. Who overlaps?
ii. Why they overlap?
iii. How widespread is the practice?
iv. What are the impacts of overlapping?
v. Does it lead to increased income, improved living standards, or conversely, over-
indebtedness and financial hardship?
vi. Does overlapping membership affect their loan repayment rates, operational
efficiency, or outreach to specific client segments?
vii. Does overlapping competition among MFIs lead to responsible or potentially harmful
lending practices?
1.3 Objectives of the Study
In this study, an effort has been taken to explore the answers to the above-mentioned questions.
The prime objective of this study is to assess the impact of overlapping on the poor borrowers
in terms of household income. Understanding the extent and nature of overlapping: Assessing
the impacts of overlapping: Developing solutions and recommendations: This study will find
the prevalence and types of overlapping in flood prone (Boromtaipara). Impact of overlapping
on borrower well-being and repayment performance. Strategies for MFIs to mitigate negative
impacts and promote responsible borrowing.
1.4 Significance of the Study
This study matters because 629 MF-NGOs mobilize about 13.85 million poor people (the
Credit and Development Forum (CDF), an NGO that collects data on MFIs, reports). These
organizations and their borrowers lending and borrowing patterns and financial risk
management depends on this issue. Also, the lessons learned from microcredit overlapping can
contribute to other fields/contexts, such as financial system reforms and development
strategies, student loans or consumer credit, to improve debt management practices and prevent
financial distress. Studying overlapping dynamics in microcredit is significant for its potential

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to inform policies, enhance the effectiveness of microfinance interventions, empower
communities, and contribute to the broader goals of sustainable development. The findings can
guide stakeholders in creating more resilient, inclusive, and impactful microfinance
ecosystems. The study of overlapping in microcredit offers valuable insights into various
aspects of the microfinance sector and its impact on clients and institutions.
1.5 Scope and Limitations
MFI’s works across the Bangladesh and beyond. Though the MFI’s have been technology-
driven than before still the data on overlapping microcredit borrowers are not available and
borrowers and even the lenders are reluctant to disclose the matter as this disclosure of this
overlapping microcredits can bar their clients and lenders for further transaction. Therefore,
data have been collected on KII from the people involved in the system.

1.6 Methodology
i. Target Groups: Through KII, this study was conducted in Boromtai para, Bharatkhali
union, Saghata upazila, Gaibandha District. And 50 overlapping borrowers participated
by SKS Foundation.
ii. Location: Rangpur Division, Gaibandha, Saghata upazila, Bharatkhali union,
Dhakkhin Ulla village, Boromtai para.
iii. Data Collection: Primary data was collected using questionnaire.
iv. Sampling technique: A complete borrowers list of the community who took credit
2022-2023 was collected from SKS Foundation of the selected para. The complete
borrower list only got from SKS Foundation due to be an employee of SKS Foundation
and trusworthy. Other 4 NGO (GUK, TMSS, Brac, Grameenbank) working in the para
were not willing to provide the data on their borrowers. Multi-stage Simple Random
Sampling (SRS) technique was used. Sampling techniques has been presented in the
following schematic diagram. It was so far planned to collect at least 50 data collected
for this study. Sample size was calculated using the following formula after preparing
the comprehensive borrowers list.
Rangpur Division Purposively Selected
Districts (8) (Gaibandha) Purposively Selected
Upazila (7) (Saghata) Purposively Selected
Union (10) (Bharatkhali Union) Purposively Selected
Village (11) (Dhakkhin Ulla) Purposively Selected
Para (10) (Boromtai para) Purposively Selected
Total Household (245) (1600 Population) Purposively Selected
Total Borrowers (650 HH) (400 overlapping borrowers) Purposively
Hindu 45 Selected
Total overlapping borrowers Simple Random Sampling (50)
Table 1: Sampling Procedure

viii. Time of Data collection: December 2023

ix. Data collected on: /
- Socio-demographic
- Credit Management (Disbursement and repayment data)

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 - Household assets
- Types of income generating (IGA) pursued by the household.
- Information related to ----- training.
- Opinion of the borrowers about lending money
- Problem faced by the community to participate in the credit program.
x. Method of data analysis:
- Descriptive analysis
- Regression analysis to use assess the impact of credit on income.
- Likers Scale to use assess the opinion of the borrowers about the credit program.
xi. Estimation technique: Ordinary Lease Square (OLS) technique to use assess the
impact of --------------
xii. Diagnostic Test of the OLS:

Chapter 2: Literature Review: Previous Studies Related to Microcredit

Overlapping
There are numerous studies examining microcredit overlapping, each exploring different
aspects, and using diverse methodologies. Here are some notable examples categorized by their
focus:
2.1 Impact on Clients:
“Multiple Microfinance Borrowers: Over-Indebtedness or Risk Management?” by Abhijit
Banerjee, Esther Duflo, and Robert Glennerster (2014): This study in India found limited
evidence of widespread over-indebtedness due to overlapping, indicating clients might
strategically use diverse lenders. “The Double-Edged Sword of Microfinance: Debt Overhang
and Poverty Traps” by Jonathan Morduch and Beatrice Finnerty (2015): This study in
Bangladesh argues that overlapping can exacerbate poverty for vulnerable clients struggling
with repayment. “Financial Literacy and Overlapping Microcredit Debt: Evidence from a
Randomized Experiment in the Philippines” by Asli Demirguc-Kunt, Alberto Galindo, and
Jonathan Morduch (2016): This study shows financial literacy training can reduce overlapping
and improve repayment behavior. Over-indebtedness: Several studies raise concerns about
over-indebtedness arising from overlapping, potentially pushing clients deeper into poverty.
Studies by Morduch and Finnerty (2015) and Banerjee et al. (2014) highlight this risk, while
others like Roodman (2011) suggest a more nuanced picture depending on the context.
Financial well-being: Research examines the broader impact of overlapping on clients'
financial stability, repayment capacity, and overall well-being. Demirguc-Kunt et al. (2016)
show financial literacy training can mitigate negative effects, while Morduch (2010)
emphasizes the potential challenges. Product design: Studies inform the development of loan
products that cater to diverse client needs and minimize over-borrowing risks. Understanding
borrowing patterns across MFIs helps design more appropriate products, as suggested by
Banerjee et al. (2012).
2.2 Impact on MFIs:
"Competition and Overlapping Borrowers in the Bangladeshi Microfinance Market" by
Christopher Woodruff and David Roodman (2009): This study finds increased competition

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might lead to overlapping but doesn't necessarily harm MFIs' financial performance. "The
Consequences of Credit Overlap for Microfinance Institutions" by Jonathan Morduch (2010):
This study argues that overlapping can increase MFI costs due to higher default rates and client
acquisition challenges. "Managing Client Overlap in the Microfinance Industry: A Case Study
of SKS Microfinance" by Amit Banerjee, Christophe Souletie, and Jonathan Morduch (2012):
This case study highlights how an MFI can develop strategies to mitigate risks associated with
overlapping. Financial sustainability: Overlapping can affect MFIs' financial sustainability due
to potential defaults. Morduch (2010) highlights increased costs, while Woodruff and Roodman
(2009) suggest competition might not necessarily harm performance. Competition and market
dynamics: Understanding the competitive landscape and identifying areas with high
overlapping is crucial for outreach optimization. Studies like Roodman (2011) explore this
dynamic and its implications. Regulation and policy development: Research informs
regulations and policies promoting responsible lending and preventing over-indebtedness.
Roodman (2013) discusses different regulatory approaches, while Microfinance Summit
Campaign (2013) emphasizes client protection measures.
2.3 Sector-wide Implications:
"Microfinance Overlap: Understanding the Risks and Benefits" by David Roodman (2011):
This paper offers a comprehensive overview of overlapping, outlining its potential downsides,
and suggesting policy improvements. "Microfinance Overlap: Regulatory Approaches" by
David Roodman (2013): This paper explores different regulatory approaches to address
overlapping and their potential effectiveness. "The Future of Microfinance: A Roadmap for
Increasing Impact" by Microfinance Summit Campaign (2013): This report emphasizes
responsible lending practices and client protection measures to minimize potential harm from
overlapping.
The previous studies shed lights on the aspects of microcredit overlapping. Few studies focused
on ------------------------------------------------. Thus, this study has taken the effort to assess the
impact of --------------- on the

Chapter 3: Conceptual Framework

Lender Borrowers Lender

Table 2:

Chapter 4: Cross-Sector Collaborations in overlap in Microcredit

Different sectors like Government, Non-Government Organizations (NGOs), and Corporate
Partners are involved in Microcredit. Government provides regulatory frameworks, subsidies,
and other forms of support, Non-Governmental Organizations (NGOs) focus on community
development, social services, and Private Sectors offer inputs, technical assistance, or market
access to micro entrepreneurs. By working together, different sectors can overcome limitations
and achieve greater impact for micro entrepreneurs. By understanding the overlaps, benefits,
and challenges, stakeholders can work together to create impactful and sustainable
partnerships.

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4.1 Challenges
It poses potential imbalances in power and decision-making between different sectors
particular among the small and big organizations. It needs to ensure all partners share a
common vision and approach, and as well as tracking and measuring the impact of
collaborations to ensure success. .
4.2 Opportunities
It mitigates risk, develops news financial products, connects micro entrepreneurs to new
markets, builds capacity of micro enterers, improves outreach, and partners.

Chapter 5: Impact of Overlapping in Microcredit Effectiveness: A

Double-Edged Sword
Overlap in microcredit, where multiple institutions offer loans to the same borrowers, can have
both positive and negative impacts on its effectiveness. By understanding both the potential
benefits and drawbacks of overlapping, stakeholders can work towards maximizing its positive
impact on microcredit effectiveness and ensuring financial inclusion for all.
5.1 Potential benefits:
- Increased access to finance: Overlapping can lead to more options for borrowers, potentially
enabling them to access smaller loans, longer repayment periods, or specialized products that
better fit their needs.
- Competition and innovation: Multiple providers competing for clients can spur innovation in
product design, delivery methods, and client services, ultimately benefiting borrowers.
- Improved client selection: Competition can encourage MFIs to screen borrowers more
carefully, potentially reducing default rates and improving loan repayment.
5.2 Potential drawbacks:
- Over-indebtedness: Borrowers taking loans from multiple lenders can quickly become over-
indebted, leading to financial stress and difficulty repaying any or all loans.
- Multiple reporting burdens: Borrowers may face difficulties managing paperwork and
reporting requirements from different lenders, increasing frustration and potentially hindering
loan utilization.
- Conflicting advice and practices: Different lenders may offer conflicting advice or practices,
confusing borrowers and potentially hindering their business development.
- Reduced coordination and impact: Overlapping can fragment service delivery and hinder
collaboration between lenders, limiting the overall impact on financial inclusion and poverty
reduction.
Overall, the impact of overlapping in microcredit is complex and depends on various factors.
While it can potentially increase access and competition, it's crucial to mitigate risks associated
with over-indebtedness and ensure responsible lending practices through coordination, client
protection, and appropriate product design.

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Chapter 6: Case Studies
Like other girls of a fishing
community, Sathi Rani Das
(25) has got married in another
fishing community laying on
the bank of the Jamuna River
called Boromtaipara of
Dhakhin Ulla village under
Bharatkhali union of Saghata
upazila of Gaibandha district.
She got married when she was
15 year-old. At the beginning,
she and her husband were in a
joint family with her father-in-
law sharing their income. But
at a point, she got separated for
the joint family and her
husband got struggle to find
income sources individually.
As the family lives at the river
bank and her husband belongs
Figure 1: Case Study picture.

to the fishing community her husband used to catch fish with his father. But day changed, her
husband had to find his living by own. For sometimes, her husband had to works somewhere
else something else than his traditional work. As he had no boat and no net to catch the
fish. Meanwhile, Sathi looked for loan for buying a boat and net for her husband. But no one
would like to give such amount of loan that she was looking for starting their income. She was
needed more than one lac but no single lender wished to pay that amount, so she seek loan from
another lender. But that was not even enough for that. So she seeks for another lender. Now,
she could afford for a boat and a fishing net. She said, repaying is not a problem as long as
there are constant incomes.

Chapter 7: Recommendations
7.1 Policy Implications
Despite significant efforts, several policy implications concerning overlapping microcredit
remain. The overlap of microcredit services from various institutions presents intriguing policy
implications.
Data sharing and transparency among the various lenders remain lack. Therefore, borrowers
may still receive loans from multiple lenders without their knowledge, leading to over-

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indebtedness. And there are no unify regulatory frameworks, different regulations, and
reporting formats make chaos. Different product design by different stakeholders. Lack of
financial literacy and technology lead to policy implication.
Addressing the overlaps in microcredit through well-crafted policy interventions can enhance
its positive impact on poverty reduction and financial inclusion. By focusing on robust
regulatory frameworks, fostering market coordination, promoting innovative products, and
leveraging technology, policymakers can create an environment where overlapping microcredit
services empower borrowers and contribute to inclusive and sustainable development.
7.2 Best Practices for Collaborations: Examples of successful collaborations:
- MFIs and NGOs: Partnering to offer financial literacy training alongside microloans.
- Banks and fintech companies: Developing digital platforms for loan applications and financial
management.
-Government agencies and private sector: Implementing programs that link microentrepreneurs
to supply chains.
7.3 Future Research Directions
For further exploration, you might consider researching:
- Case studies of successful or problematic overlapping in microcredit in different countries.
- Initiatives promoting information sharing and coordination among microfinance providers.
- Regulations and best practices for responsible lending in microfinance.

Chapter 8: Conclusion
8.1 Summary of Findings
8.2 Contributions to Existing Knowledge
8.3 Implications for Practice
8.4 Final Thoughts

This thesis seeks to provide a comprehensive understanding of the overlapping dynamics in

microcredit, shedding light on the various actors involved, the challenges faced, and the impact
on the effectiveness and sustainability of microfinance initiatives. By analyzing cross-sector
collaborations, the research aims to contribute valuable insights to policymakers, practitioners,
and researchers working towards enhancing financial inclusion globally.

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