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Interest rates in community-managed microfinance: How the poorest Africans earn sixty percent return on their savings

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Author Info

  • Rasmussen, Ole Dahl

    ()
    (Department of Business and Economics)

Abstract

It is common to see the interest rate on savings in community-managed microfinance being reported as "20-30% annually". Using panel data from 204 groups in Malawi, I show that the right figure is likely to be at least twice this figure. This is due to sector-wide application of non-standard interest rate calculation and unrealistic assumptions about the savings profile in the groups. In the 204 groups, the annual interest rate on savings is 63%. For transparency and accountability donors, politicians and practitioners should change their interest rate calculations. Furthermore, the proposal method will allow practitioners to better monitor group performance.

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File URL: http://static.sdu.dk/mediafiles//8/F/1/%7B8F13B80E-D62B-496C-BECA-BFFDCB6FBAB2%7Ddpbe9_2012.pdf
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Bibliographic Info

Paper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 9/2012.

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Length: 34 pages
Date of creation: 29 Mar 2012
Date of revision:
Handle: RePEc:hhs:sdueko:2012_009

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Postal: Department of Business and Economics, University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Phone: 65 50 32 33
Fax: 65 50 32 37
Email:
Web page: http://www.sdu.dk/ivoe
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Related research

Keywords: Microfinance; interest rates; performance monitoring; community-managed microfinance; village savings and loan associations; Malawi; NGO;

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