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Macroeconomic factors influencing interest rates of microfinance institutions in Latin America

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  • Janda, Karel
  • Zetek, Pavel

Abstract

Agricultural output in developing countries still represents a substantial part of GDP. This ratio has actually increased in some areas such as Latin America. As such, there is an increasing importance of microfinance institutions (MFIs) focusing on activities associated with agriculture and encouraging entrepreneurship in agriculture and in the rural communities in general. The contribution of microfinance institutions consists mainly in providing special-purpose loans, usually without collateral. However, questions exist as to the magnitude and adequate level of risk of providing micro-credit loans in relation to the interest rates being charged. We review two main approaches to setting interest rates in MFIs. One approach takes the view that interest rates should be set at a high level due to the excessive risk that these institutions undertake. The second approach is to convince the public of the possibility of reducing these rates through cost savings, increased efficiency, and sharing best practice, etc. Subsequently we econometrically analyse the impact of macroeconomic factors on microfinance interest rates in Latin America and the Caribbean. We show that these results depend on the chosen indicator of interest rate.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49973.

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Date of creation: 19 Sep 2013
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Handle: RePEc:pra:mprapa:49973

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Keywords: microfinance; interest rate; macroeconomic factors; agriculture;

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  1. Annabel Vanroose & Bert D’Espallier, 2013. "Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ outreach and performance," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 1965-1982, May.
  2. Mallick, Debdulal, 2009. "Microfinance and Moneylender Interest Rate: Evidence from Bangladesh," MPRA Paper 17800, University Library of Munich, Germany.
  3. D'Espallier, Bert & Guérin, Isabelle & Mersland, Roy, 2011. "Women and Repayment in Microfinance: A Global Analysis," World Development, Elsevier, vol. 39(5), pages 758-772, May.
  4. Cull, Robert & Demirguc-Kunt, Asli & Morduch, Jonathan, 2008. "Microfinance meets the market," Policy Research Working Paper Series 4630, The World Bank.
  5. John Weiss & Heather Montgomery, 2005. "Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 33(3-4), pages 391-416.
  6. Dokulilova, Lenka & Janda, Karel & Zetek, Pavel, 2009. "Sustainability of microfinance institutions in financial crisis," MPRA Paper 17696, University Library of Munich, Germany.
  7. Michal Bauer & Julie Chytilova & Jonathan Morduch, 2012. "Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India," American Economic Review, American Economic Association, vol. 102(2), pages 1118-39, April.
  8. Annabel Vanroose, 2006. "The uneven development of microfinance: a Latin-American perspective," Working Papers CEB 06-021.RS, ULB -- Universite Libre de Bruxelles.
  9. Petra Buzková & Petr Teplý, 2012. "Collateralized Debt Obligations´ Valuation Using the One Factor Gaussian Copula Model," Prague Economic Papers, University of Economics, Prague, vol. 2012(1), pages 30-49.
  10. Ahlin, Christian & Lin, Jocelyn & Maio, Michael, 2011. "Where does microfinance flourish? Microfinance institution performance in macroeconomic context," Journal of Development Economics, Elsevier, vol. 95(2), pages 105-120, July.
  11. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  12. Annabel Vanroose & Bert D’Espallier, 2009. "Microfinance and Financial Sector Development," Working Papers CEB 09-040.RS, ULB -- Universite Libre de Bruxelles.
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