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What determines microcredit interest rates?

Author

Listed:
  • Gregor Dorfleitner
  • Michaela Leidl
  • Christopher Priberny
  • Jakob von Mosch

Abstract

High microcredit interest rates cause fierce debates among practitioners, scholars and even the general public. To objectify these discussions, this article investigates determinants of microcredit interest rates by using a worldwide data set of 712 microfinance institutions (MFIs). We examine how cost factors, gender, regulation, lending methodology and organizational type affect microcredit interest rates. Controlling for other microfinance- and country-specific factors, we identify the operating expenses as the main factor influencing microcredit interest rates. Furthermore, our findings show that MFIs tend to subsidize interest rates charged with income from investments not related to their lending activities.

Suggested Citation

  • Gregor Dorfleitner & Michaela Leidl & Christopher Priberny & Jakob von Mosch, 2013. "What determines microcredit interest rates?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(20), pages 1579-1597, October.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:20:p:1579-1597
    DOI: 10.1080/09603107.2013.839860
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    References listed on IDEAS

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    1. Guillermo Baquero & Malika Hamadi & Andréas Heinen, 2012. "Competition, loan rates and information dispersion in microcredit markets," ESMT Research Working Papers ESMT-12-02, ESMT European School of Management and Technology.
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    Cited by:

    1. Amvella Motaze, Serge Patrick, 2022. "The determinants of the lending interest rate in a cost-based approach: Theoretical model and empirical analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 36-51.
    2. Hailu Abebe Wondirad, 2022. "Interest rates in microfinance: What is a fair interest rate when we lend to the poor?," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(6), pages 4537-4548, December.
    3. Md Aslam Mia & Lucia Dalla Pellegrina & Patrick Damme & Mahinda Wijesiri, 2019. "Financial Inclusion, Deepening and Efficiency in Microfinance Programs: Evidence from Bangladesh," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(4), pages 809-835, September.
    4. Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2016. "Aid Volatility and Social Performance in Microfinance," Working Papers CEB 16-015, ULB -- Universite Libre de Bruxelles.
    5. Rafiatul Adlin Mohd Ruslan & Syahiru Shafiai & Mei-Shan Chua & Siti Nurhidayah Mohd Roslen, 2023. "Unraveling the Determinants of Microcredit Interest Rate," Information Management and Business Review, AMH International, vol. 15(3), pages 369-375.
    6. Yuriy Lupenko & Svitlana Andros, 2020. "Modeling the Credit System in the Conditions of Interaction of the Banking Sector with Microfinance Organizations for Financial Support of Agricultural Business," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 74-80, June.
    7. Uddin, Md Hamid & Akter, Shabiha & Mahi, Masnun Al & Mollah, Sabur, 2024. "Why do microfinance institutions charge higher interest rates than banks? The role of operating costs," Finance Research Letters, Elsevier, vol. 70(C).
    8. Gregor Dorfleitner & Davide Forcella & Quynh Anh Nguyen, 2021. "Why microfinance institutions go digital: An empirical analysis," Working Papers CEB 21-003, ULB -- Universite Libre de Bruxelles.
    9. Kovacs, Attila, 2018. "Gender Differences in Equity Crowdfunding," OSF Preprints 5pcmb, Center for Open Science.
    10. Dorfleitner, G. & Just-Marx, S. & Priberny, C., 2017. "What drives the repayment of agricultural micro loans? Evidence from Nicaragua," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 89-100.
    11. Beatriz Cu鬬ar-Fernᮤez & Yolanda Fuertes-Call鮠 & Carlos Serrano-Cinca & Bego uti鲲ez-Nieto, 2016. "Determinants of margin in microfinance institutions," Applied Economics, Taylor & Francis Journals, vol. 48(4), pages 300-311, January.
    12. Adriana Ramírez Rocha & Mauricio Cervantes Zepeda & Luis Arturo Bernal Ponce, 2019. "The determinants of outreach and profitability in MFI's: a structural equation approach," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(1), pages 129-146, Enero-Mar.
    13. Adriana Ramírez Rocha & L. Arturo Bernal Ponce & Mauricio Cervantes Zepeda, 2019. "Differences in the interest rates of microfinance institutions in some emerging markets economies: An HLM approach/Diferencias en las tasas de interés entre instituciones financieras de algunas econo," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 34(2), pages 275-307.
    14. Ahmad, Syedah & Lensink, Robert & Mueller, Annika, 2020. "The double bottom line of microfinance: A global comparison between conventional and Islamic microfinance," World Development, Elsevier, vol. 136(C).
    15. Djibril Faye & Zaka Ratsimalahelo, 2022. "Dynamic analysis of the interest rate determinant in microfinance institutions," Working Papers 2022-09, CRESE.
    16. Dorfleitner, Gregor & Priberny, Christopher & Röhe, Michaela, 2017. "Why do microfinance institutions fail socially? A global empirical examination," Finance Research Letters, Elsevier, vol. 22(C), pages 81-89.
    17. Nan Zhou & Wenli Cheng & Longyao Zhang, 2022. "Stepping Stone: The Logic of Financial Inclusion through Microcredit in Rural China," Monash Economics Working Papers 2022-15, Monash University, Department of Economics.
    18. Yang Zhao & Xuemei Xie & Liuyong Yang, 0. "Female entrepreneurs and equity crowdfunding: the consequential roles of lead investors and venture stages," International Entrepreneurship and Management Journal, Springer, vol. 0, pages 1-29.
    19. Kovacs, Attila, 2018. "Gender Differences in Equity Crowdfunding," OSF Preprints 5pcmb_v1, Center for Open Science.
    20. Philippe Adair & Imene Berguiga, 2017. "What Determines Premium of MFIs in the Mena Region? A Panel Data Analysis (2004- 2014)," Post-Print hal-01667346, HAL.
    21. Yang Zhao & Xuemei Xie & Liuyong Yang, 2021. "Female entrepreneurs and equity crowdfunding: the consequential roles of lead investors and venture stages," International Entrepreneurship and Management Journal, Springer, vol. 17(3), pages 1183-1211, September.
    22. Sydney Chikalipah, 2017. "Institutional Environment and Microfinance Performance in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 29(1), pages 16-27, March.
    23. Marek Hudon & Marc Labie & Patrick Reichert, 2020. "What is a Fair Level of Profit for Social Enterprise? Insights from Microfinance," Journal of Business Ethics, Springer, vol. 162(3), pages 627-644, March.
    24. Begoña Gutiérrez-Nieto & Carlos Serrano-Cinca & Beatriz Cuéllar-Fernández & Yolanda Fuertes-Callén, 2017. "The Poverty Penalty and Microcredit," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 455-475, September.

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