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The Poverty Penalty and Microcredit

Begoña Gutiérrez-Nieto, Carlos Serrano-Cinca, Beatriz Cuéllar-Fernández and Yolanda Fuertes-Callén
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Carlos Serrano-Cinca: University of Zaragoza
Beatriz Cuéllar-Fernández: University of Zaragoza
Yolanda Fuertes-Callén: University of Zaragoza

Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 2017, vol. 133, issue 2, 455-475

Abstract: Abstract A poverty penalty arises when the poor pay more than the non-poor to access goods and services. An example is the cost to access credit. Microfinance Institutions (MFIs) usually explain their high interest rates on the grounds of the high risk involved in microcredit, the high fixed cost associated with small loans and the high financial expenses borne by MFIs due to difficulties in deposit collection. The paper finds that a poverty penalty exists. After identifying drivers of the poverty penalty in a sample of MFIs from 17 countries, this paper focuses on the Colombian case. Operating costs is the most important factor explaining effective interest rates. Other factors, such as risk, cost of funds, or profitability, are relevant in some regions. This paper encourages transparent pricing as a keystone for ethics in these entities.

Keywords: Microfinance; Poverty penalty; Mission drift; Banking (search for similar items in EconPapers)
Date: 2017
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