Interest rates in community-managed microfinance: How the poorest Africans earn sixty percent return on their savings

Ole Rasmussen ()

No 9/2012, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: It is common to see the interest rate on savings in community-managed microfinance being reported as "20-30% annually". Using panel data from 204 groups in Malawi, I show that the right figure is likely to be at least twice this figure. This is due to sector-wide application of non-standard interest rate calculation and unrealistic assumptions about the savings profile in the groups. In the 204 groups, the annual interest rate on savings is 63%. For transparency and accountability donors, politicians and practitioners should change their interest rate calculations. Furthermore, the proposal method will allow practitioners to better monitor group performance.

Keywords: Microfinance; interest rates; performance monitoring; community-managed microfinance; village savings and loan associations; Malawi; NGO (search for similar items in EconPapers)
JEL-codes: G21 M40 O16 Q13 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012-03-29
New Economics Papers: this item is included in nep-afr, nep-ban and nep-mfd
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