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Daniel Rozas: MIMOSA, Overindebtedness and Saturation in Microfinance Markets

by Daniel Rozas

Daniel Rozas is a microfinance researcher based in Brussels and specializes in market analysis, risk and crisis, and client protection. From 2001-2008, he worked for the US mortgage investment company Fannie Mae and witnessed firsthand how risk within a market can build and then explode into a crisis. In 2013, he co-developed MIMOSA (the Microfinance Index of Market Outreach and Saturation), a tool to measure capacity and saturation levels in markets.

In the above video segment, Rozas describes the credit market cycle and explains how and why markets become oversaturated and excessively competitive. He references Hyman Minsky’s theory that credit markets tend to fall into a “boom and bust” pattern, arguing that the defining feature of a “boom” ending is clients repaying loans with “future borrowing” (other loans) instead of “future income.”

Referencing his time at Fannie Mae, Rozas outlines the risks that were taken by subprime mortgage companies in the US and the types of aggressive competition they faced. He then compares current microfinance markets in Cambodia and Peru, both of which recently received MIMOSA scores of “6” – the highest possible – indicating alarming levels of oversaturation. He closes by cautioning against the use of traditional pre-crisis indicators, insisting that by the time delinquency rises a crisis is already in motion and cannot be prevented. Instead, he urges professionals within and outside of the industry to remain continually cognizant of overindebtedness levels in order to prevent clients from becoming “re-excluded” from financial services after finding themselves unable to repay their loans.

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