Currency risk and microcredit interest rates

Moh'd Al-Azzam and Karim Mimouni

Emerging Markets Review, 2017, vol. 31, issue C, 80-95

Abstract: Foreign currency debt provides additional access to capital and offers funds in favorable and flexible terms to microfinance institutions (MFIs). Yet, we find that the use of foreign currency debt, on average, leads to higher microcredit interest rates. We also find that MFIs operating in countries with pegged exchange rate regimes and profit MFIs are better able to mitigate foreign currency risk. The results of the paper suggest that local currency debt is a better option for MFIs if the goal is to provide microcredit at lower interest rates.

Keywords: Microfinance; Microcredit interest rates; Foreign currency risk; Local currency (search for similar items in EconPapers)
JEL-codes: G2 O2 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:31:y:2017:i:c:p:80-95

DOI: 10.1016/j.ememar.2017.03.001

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