I was wondering whether formal bank debts are inheritable or not. This isn't by any means my domain, but a brief scan of some debt counseling websites in US and UK suggests a basic framework:
- Co-signed loans survive when primary borrower dies. Such cosigned loans are also usually dual-use, i.e. both husband & wife benefit from the loan.
- Collateralized loans (mortgages, etc.) are repaid through sale of collateral, unless someone wants to take over the asset together with the loan obligation.
- Individual loans are settled by the estate, i.e. the assets left behind by the decedent. An insolvent estate means a write-off to the lender. Members of the household are under no obligation to settle the debts if they lay no claim on the assets.
So how does this look in the MF world? First, MF loans are usually uncollateralized, and rarely cosigned by family members. The role of guarantors and groups is to vouch for the credibility of the client -- but unlike household members, they don't derive any benefit from the loan itself. In effect, an MF loan is a claim on the borrower's future income. If there is no income (e.g. in the case of death), the claim should become void. Nothing in the contract suggests that the claim ought to now fall on another individual.
Second, the poor are also poor in assets -- sale of these will rarely fetch much value to the lender. Normally, such seizures are used to maintain the incentive to repay rather than cover the loan value itself. The one significant asset of the (rural) poor may be land, though I doubt MFIs want to start seizing the land of their deceased customers...
What this tells me is that MF loans shouldn't outlive their borrowers. And I go back to my original point -- if MFIs want to protect themselves against this risk (which is quite small, actually), they're free to purchase insurance on their portfolio at much cheaper rates than individual policies. The examples shared of cooperatives doing this is a perfect case in point.
As Srinivasan pointed out, there are often value-added features to loan insurance policies (insurance cover for the spouse or other household members, payout for funeral expenses, etc.). These are client-centric. However, the main feature -- payoff of the loan balance after death -- is not, and shouldn't be presented that way.
Sorry for the rant. But seeing this type of insurance sold as a client-centric product has been a pet-peeve of mine for quite some time. We can do better.
Daniel
__._,_.___
Posted by: danrozas@yahoo.com
| Reply via web post | • | Reply to sender | • | Reply to group | • | Start a New Topic | • | Messages in this topic (32) |
WARNING! If you hit REPLY, your message will go to the entire listserve, not just the original author!
.
__,_._,___
No comments:
Post a Comment