Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/191329 
Year of Publication: 
2018
Series/Report no.: 
AGDI Working Paper No. WP/18/006
Publisher: 
African Governance and Development Institute (AGDI), Yaoundé
Abstract: 
This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution's age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs.
Subjects: 
Microfinance
microbanks
non-bank financial institutions
interest rates
age
economies of scale
developing countries
JEL: 
G21
G23
G28
E43
N20
Document Type: 
Working Paper

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