When Microcredit Hurts: Overindebtedness in Times of Uncertainty

Neutral summary (based on title and context): This paper investigates the adverse effects of microcredit on borrower welfare under conditions of economic uncertainty. Using detailed microdata on borrowers’ credit histories and macroeconomic shocks, the authors show that microcredit can exacerbate financial distress and overindebtedness, particularly when households face income volatility or economic downturns. The findings provide nuanced insights into the contexts in which microcredit is most likely to harm rather than help borrowers.