The determinants of interest rates in microfinance: age, scale and organisational charter

Jacinta Nwachukwu (), Aqsa Aziz, Uchenna Tony-Okeke and Simplice Asongu

MPRA Paper from University Library of Munich, Germany

Abstract: This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs.

Keywords: : Microfinance; microbanks; non-bank financial institutions; interest rates; age; economies of scale; developing countries (search for similar items in EconPapers)
JEL-codes: E43 G21 G23 G28 N20 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The determinants of interest rates in microfinance: Age, scale and organizational charter (2018)
Working Paper: The determinants of interest rates in microfinance: age, scale and organisational charter (2018)
Working Paper: The determinants of interest rates in microfinance: age, scale and organisational charter (2018)
Working Paper: The determinants of interest rates in microfinance: age, scale and organisational charter (2018)
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