Understanding Loan Pipelining in Microfinance
Loan pipelining refers to the practice of clients seeking and acquiring loans from multiple microfinance institutions simultaneously. This can result in several challenges. In this tutorial, we will explore what loan pipelining is and how to mitigate it, particularly in centers formed by microfinance institutions.
Key Aspects of Loan Pipelining:
- Multiple Borrowing: Clients apply for loans from more than one microfinance institution without the others’ knowledge.
- Increased Indebtedness: Loan pipelining can lead to increased debt for clients, making it challenging to manage repayments.
- Default Risk: When clients have multiple loans, they may prioritize repayments based on the severity of consequences, potentially leading to defaults.
