Household over-indebtedness with micro-financial institutions
The German Economic Team Moldova together with the National Commission for Financial Markets has collected data on household over-indebtedness with micro-financial institutions. Although the data in our sample is probably only an approximation of the actual situation, it is closing an information gap.
Our analysis shows that over-indebtedness of households through loans from micro-financial institutions has increased since 2016. At the same time, it does not represent a consistent trend as the market in Moldova is very heterogeneous. The increase is primarily related to irresponsible lending by a handful of institutions that are growing strongly. This has increased the volume and the number of non-performing loans – an indicator of over-indebtedness -for the whole sector.
Based on our analysis, we recommend stronger supervision of micro-financial institutions whose business model is based on irresponsible lending. If necessary, a stricter regulation should also be considered. At the same time, the social function of micro-financial institutions – access to credit for certain groups that would otherwise not have access – should be maintained.
