Interest Rates and Implications for Microfinance in Latin America and the Caribbean

Rashmi Kiran Ekka, Mark D. Wenner and Anita Campion

No 4298, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Microfinance institutions (MFIs) have been successful in providing credit to millions of low-income borrowers in groups previously excluded from formal financial services, but they often charge interest rates that many claim are excessive. We examine microfinance interest rates and their determinants in order to understand how these rates might be lowered. Using high-quality financial data from 29 institutions in seven countries over a period of four years, and drawing on information from field visits with clients, we explore patterns of cost and efficiency in MFIs. We find that improved operational efficiency comes with increased competition and institutional age, or learning by doing. Encouragingly, our regression analysis shows patterns of profit-making MFIs charging lower interest rates. We also find that interest rate caps reduce the outreach of these institutions to the poor, women, and rural clients.

Keywords: efficiency; microfinance; tasas de interés, eficiencia, microfinanzas; interest rates (search for similar items in EconPapers)
JEL-codes: E43 G21 O16 (search for similar items in EconPapers)
Date: 2010-03
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:4298

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