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Currency risk and microcredit interest rates

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  • Al-Azzam, Moh'd
  • Mimouni, Karim

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.

Suggested Citation

  • Al-Azzam, Moh'd & Mimouni, Karim, 2017. "Currency risk and microcredit interest rates," Emerging Markets Review, Elsevier, vol. 31(C), pages 80-95.
    • Handle: RePEc:eee:ememar:v:31:y:2017:i:c:p:80-95
    DOI: 10.1016/j.ememar.2017.03.001
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    Cited by:

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    2. Sommarat Chantarat & Atchana Lamsam & Krislert Samphantharak & Bhumjai Tangsawasdirat, 2020. "Household Debt and Delinquency over the Life Cycle," Asian Development Review, MIT Press, vol. 37(1), pages 61-92, March.
    3. Maaitah, Nebal Al, 2018. "Discriminatory Practice In Microfinance: Gender And Glass Ceiling On Loan Size (Case Study From Jordan)," Journal of Central European Green Innovation, Karoly Robert University College, vol. 6(1).
    4. Obadia Kyetuza Bishoge & Benatus Norbert Mvile, 2020. "The “resource curse” from the oil and natural gas sector: how can Tanzania avoid it in reality?," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 33(3), pages 389-404, October.
    5. Yushchenko, Alisa & Patel, Martin Kumar, 2017. "Cost-effectiveness of energy efficiency programs: How to better understand and improve from multiple stakeholder perspectives?," Energy Policy, Elsevier, vol. 108(C), pages 538-550.
    6. Jian Mou & J. Christopher Westland & Tuan Q. Phan & Tianhui Tan, 2020. "Microlending on mobile social credit platforms: an exploratory study using Philippine loan contracts," Electronic Commerce Research, Springer, vol. 20(1), pages 173-196, March.
    7. Al-Azzam, Moh'd & Mimouni, Karim & Smaoui, Houcem & Temimi, Akram, 2022. "Subsidies vs. deposits and cost inefficiency in microfinance," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 212-235.

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    More about this item

    Keywords

    Microfinance; Microcredit interest rates; Foreign currency risk; Local currency;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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