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Determinants of Margin in Microfinance Institutions

Author

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  • Beatriz Cuéllar Fernández
  • Yolanda Fuertes-Callén
  • Carlos Serrano-Cinca
  • Begoña Gutiérrez-Nieto

Abstract

Microfinance institutions (MFIs) lend to the poor, fostering these individuals’ financial inclusion. However, microfinance clients suffer from high interest rates, a type of poverty penalty. Reducing margins and lowering interest rates should be a target for MFIs with a strong social commitment. This paper analyzes the determinants of margin in MFIs. A banking model has been adapted to the case of MFIs. This model has been empirically tested using 9-year panel data. Some factors explaining bank margin also explain MFI margin, with operating expenses being the most important factor. Specific microfinance factors are donations and legal status, as regulated MFIs can collect deposits. It has also been found that MFIs operating in countries with a high level of financial inclusion have low margins.

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  • Beatriz Cuéllar Fernández & Yolanda Fuertes-Callén & Carlos Serrano-Cinca & Begoña Gutiérrez-Nieto, 2012. "Determinants of Margin in Microfinance Institutions," Working Papers CEB 12-030, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:sol:wpaper:2013/130924
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    2. 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.
    3. 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.
    4. Djibril Faye & Zaka Ratsimalahelo, 2022. "Dynamic analysis of the interest rate determinant in microfinance institutions," Working Papers 2022-09, CRESE.
    5. Giovana Aguilar & Jhonatan Portilla, 2022. "Poder de mercado, bienestar social y eficiencia en la industria microfinanciera regulada en el Perú ," Documentos de Trabajo / Working Papers 2022-512, Departamento de Economía - Pontificia Universidad Católica del Perú.
    6. 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.
    7. Hossain, Shahadat & Galbreath, Jeremy & Hasan, Mostafa Monzur & Randøy, Trond, 2020. "Does competition enhance the double-bottom-line performance of microfinance institutions?," Journal of Banking & Finance, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    Microfinance institutions; banking; net interest income; outreach; financial inclusion;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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