The issue of over- indebtedness in the financial field has various readings and interpretations, according to the various organizations that provide credit services. It is evident that there is an excess of credits that are being granted without the least evaluation of the clients.
The over-indebtedness already exists. This does not mean that the beneficiary does not pay, but rather that it is on the verge of not paying because its source of repayment is not in a position to meet the obligations it has. It is not news that there are clients who have debts with six or seven microfinance institutions at the same time.
For this reason, one of the causes that is causing this situation comes from the financial institutions themselves (banks and microfinance entities). If this situation is analyzed from the perspective of business risk management, it will be seen that in order to meet the goals set by the MFIs (read loan installments), several analysts "approve" loans without rigorous evaluation. But it is not only a problem for microfinance institutions, but for all the organizations that are entering the sector, including the new organizations and divisions of commercial banks.
Many analysts to meet their fund placement goals are granting loans without the rigor that the norm and experience demand. As the market is growing, MFIs must hire new loan analysts, who, in turn, must take to the streets with minimal experience and little knowledge of the market, which is why the requirement of analysis is no longer carried out when detail. Lack of training is an element that must be taken into account to reduce the risk of over-indebtedness. This is the task of the management of microfinance organizations.
The fulfillment of the goals established in the short term by the MFIs distorts the quality of the evaluation that the analysts are doing, a situation that generates the granting of loans without the minimum credit evaluation.
All credit must guarantee that it has a source of repayment, that is, a return. But if the evaluations are taking place, the problems of over-indebtedness are in front of us. I insist, those responsible for financial institutions must frequently review their risk factors.
The directors and managers of each institution should know how far they want to go.
They must incorporate the principles of risk management in their organizations.
In this way, indebted clients cannot be accepted, but people who have a reasonable margin between their income and expenses will be accepted.
But the problem of a possible over-indebtedness in the market also includes "good clients", who, faced with offers of easy credit, often with a single firm, fall into the temptation to accept advantageous lines of credit. It is proven that many of these clients end up with high delinquency.
So it is not a question of placing the credits by the analysts, but rather they should assume a more leading role in their approval. There are many cases in which the parents, in cases in family businesses, are over-indebted, but the new loans are obtained in the name of the children over 18 years of age and these are simply evaluated as new clients, when the income is family. There is an urgent need to carry out rigorous credit evaluations and see how to help clients pay their debts on time.
