n African Review of Economics and Finance - Over-indebtedness of microfinance borrowers in South Africa

Volume 11 Number 2
  • ISSN : 2042-1478
  • E-ISSN: 2410-4906


Access to financial services has grown rapidly in South Africa, especially in the low-income population segment. At the same time, however, the level of over-indebtedness has increased, making poor households even more vulnerable. Employing a binary choice logistic regression model for a unique set of cross-sectional data from the 2015 FinScope survey, this study investigates the determinants of over-indebtedness among low-income earners and examines the probability of over-indebtedness given borrower demographic factors. Four of these require highlighting. First, in direct contrast to Milton Friedman’s life cycle permanent income hypothesis that people borrow, namely to smooth current expenditure with an expectation of a more substantial income stream in the future, thus younger age groups are expected to be indebted, the findings indicate that those older than 60 years are more likely to be over-indebted. Second, province is significant in predicting over-indebtedness, suggesting that there are specific regional features that could increase or decrease the risk of over-indebtedness. Third, the level of education is significant in mitigating the risk of over-indebtedness. Finally, using Schicks’s definition of over-indebtedness, the study also found that 13.05% of micro-borrowers are over-indebted in South Africa. These results suggest the need to consider revisiting social policy in South Africa on questions about public education, social protection, and public policy interventions to support the elderly.

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