This blog is a republication of a post from the MimosaIndex.org website.
Since publishing the first MIMOSA report – on Cambodia – I’ve heard one persistent critique. We say that the market is saturated, yet none of the current indicators appear to support it: repayments are great, there’s no field evidence of widespread overindebtedness, and the major MFIs are all undergoing a process of Smart Certification. How can we assert that Cambodia is at risk of overindebtedness, let alone a credit crisis, when no other indicators seem to support it?
These are important and reasonable questions. But here’s the rub – all the factors that point to a healthy market are either lagging indicators or are too vague or too poorly understood to be used as benchmarks.
First, if there’s one thing I’ve learned over the years of studying credit bubbles – starting with my work in the US mortgage sector during 2001-2008, through Andhra Pradesh, Morocco, and others – it’s that delinquency should never be used an indicator of a bubble. Rising delinquency is an important warning signal, certainly – but what it signals is that the bubble has begun to burst. From there on, it’s all about crisis management. What MIMOSA seeks to do is to avoid getting to that stage in the first place.