| Summary: | Cross-borrowing or the ability of microentrepreneurs to borrow from different lenders simultaneously is widely perceived to lead to repayment problems and a deterioration of well-being. However, there is sparse empirical evidence to support these perceptions. Based on information gathered in Peru during 2011 and 2012 and combining qualitative and quantitative research, this study aims to contribute to the in-depth understanding of cross-borrowing from the clients’ perspective and from its causes to its impact. The qualitative study is based on semi-structured interviews with 32 clients of EDYFICAR that cross-borrowed, as well as on further interviews with management and staff, which were analysed using the grounded theory approach (Corbin and Strauss 2008). In the quantitative study, data provided by Financiera EDYFICAR (one of the country’s largest MFIs) on 550 clients was collected. The data included information on the clients’ characteristics, their EDYFICAR loans since 2006, their punctuality in repaying these loans and their cross-borrowing situation. The data was analysed using different statistical methods, including tests to compare groups or correlation analysis. The study makes the following key contributions. First, it relates cross-borrowing to the microentrepreneurs’ overall financial situation. Cross-borrowing was found to increase the complexity in the borrowers’ financial portfolios, which intensifies challenges resulting from uncertainties and vulnerability to crises. Second, the study uncovers different pathways for the impact on the repayment performance and well-being. Cross-borrowing is neither a necessary nor a sufficient condition for repayment problems, but it leads to exceedingly high indebtedness-levels. When these levels are reached, small movements in income or expenditures can lead to a financial misbalance and a negative impact on the well-being. However, for those who manage cross-borrowing well, it can be an engine for growth or greater well-being. Third, the study suggests that the effective Peruvian credit bureaus play a key role in preventing a repayment crisis.
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