Interest rates in community-managed microfinance: How the poorest Africans earn sixty percent return on their savings
AbstractIt 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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Bibliographic InfoPaper provided by Department of Business and Economics, University of Southern Denmark in its series Discussion Papers of Business and Economics with number 9/2012.
Length: 34 pages
Date of creation: 29 Mar 2012
Date of revision:
Contact details of provider:
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
Web page: http://www.sdu.dk/ivoe
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Microfinance; interest rates; performance monitoring; community-managed microfinance; village savings and loan associations; Malawi; NGO;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-04-03 (Africa)
- NEP-ALL-2012-04-03 (All new papers)
- NEP-BAN-2012-04-03 (Banking)
- NEP-MFD-2012-04-03 (Microfinance)
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