THE CAUSES AND CONSEQUENCES OF OVER-INDEBTEDNESS OF MICRO-FINANCE CLIENT: EVIDENCE FROM KHULNA DIVISION, BANGLADESH

Microfinance strives to reduce poverty and promote social welfare, and thereby, MFIs provides a wide range of financial services to their client. However, some critics argue that microfinance can adversely drive its client towards over-indebtedness. Therefore, the key purpose of the study is to shed light on examining the causes and consequences of microfinance client in Bangladesh, especially in the context of Khulna division, as a few numbers of studies in Bangladesh have made an effort to serve this purpose. Using a partial least square method (PLS), and structural equation modelling (SEM), the study analyzed data of respondents (n=380). The study employed cross sectional survey method and infield (on-site) interaction with respondents to maximize response rate. The study found that psychological and cognitive bias, sociological, and economic factor cause over-indebtedness of micro-finance clients in Khulna division, Bangladesh. The study revealed that over-indebtedness causes negative material, social, and psychological and physical consequences. The findings of the study can be used to develop sophisticated policies and devise effective strategies as a mean of assisting the people, who are over-indebted, and who have the possibility to be over-indebted.