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Is exchange rate risk priced in microfinance?

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

Abstract

High microcredit interest rates have often been a source of criticism against the microfinance movement. Research has focused attention on the cost structure of interest rates and more recently on the macroeconomic and macro-institutional factors. While cost structure is probably the most important determinant of interest rates, other factors can also matter. This paper uses an innovative measure of foreign exchange risk to explore its impact on microcredit interest rates. We show that microfinance institutions that operate in countries with fixed exchange rate regimes tend to charge lower interest rates than those operating in countries with floating exchange rate regimes.

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  • Al-Azzam, Moh’d & Mimouni, Karim, 2016. "Is exchange rate risk priced in microfinance?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 520-531.
    • Handle: RePEc:eee:riibaf:v:36:y:2016:i:c:p:520-531
    DOI: 10.1016/j.ribaf.2015.10.009
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    Cited by:

    1. Giovanna Aguilar & Jhonatan Portilla, 2020. "Determinants of Market Power in the Peruvian Regulated Microfinance Sector," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 657-688, December.
    2. Dawood Ashraf & Muhammad Suhail Rizwan & Barbara L’Huillier, 2022. "Environmental, social, and governance integration: the case of microfinance institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 837-891, March.

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    More about this item

    Keywords

    Microfinance; Interest rate; Economic development; Exchange risk; Financial intermediation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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