Macroeconomic factors influencing interest rates of microfinance institutions in Latin America
AbstractAgricultural 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 49973.
Date of creation: 19 Sep 2013
Date of revision:
microfinance; interest rate; macroeconomic factors; agriculture;
Find related papers by JEL classification:
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O13 - Economic Development, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-BAN-2013-09-26 (Banking)
- NEP-DEV-2013-09-26 (Development)
- NEP-LAM-2013-09-26 (Central & South America)
- NEP-MAC-2013-09-26 (Macroeconomics)
- NEP-MFD-2013-09-26 (Microfinance)
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