Is exchange rate risk priced in microfinance?

Al-Azzam, Moh’d and Karim Mimouni

Research in International Business and Finance, 2016, vol. 36, issue C, 520-531

Abstract: High microcredit interest rates have often been a source of criticism against the microfinance movement. Research has focused attention on the cost structure of interest rates and more recently on the macroeconomic and macro-institutional factors. While cost structure is probably the most important determinant of interest rates, other factors can also matter. This paper uses an innovative measure of foreign exchange risk to explore its impact on microcredit interest rates. We show that microfinance institutions that operate in countries with fixed exchange rate regimes tend to charge lower interest rates than those operating in countries with floating exchange rate regimes.

Keywords: Microfinance; Interest rate; Economic development; Exchange risk; Financial intermediation (search for similar items in EconPapers)
JEL-codes: F31 F63 G12 G23 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:36:y:2016:i:c:p:520-531

DOI: 10.1016/j.ribaf.2015.10.009

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