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Does efficiency lead to lower prices? A new perspective from microfinance interest rates

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  • Benazir Basharat
  • Marek Hudon
  • Ahmad Nawaz

Abstract

Pricing is a central strategic decision for all companies, and is particularly sensitive for social enterprises with both financial and social objectives. High interest rates in microfinance are a topic of intense debate. Using an original database of 291 MFIs, this paper provides empirical evidence of the impact the efficiency of an MFI has on its microcredit interest rate. We use the non-parametric Data Envelopment Analysis (DEA) framework to calculate efficiency and differentiate financial and social efficiency. The results show that financial efficiency has a positive impact on interest rates, with more financially efficient MFIs having lower interest rates, while social efficiency has no impact on microcredit interest rates. Copyright

Suggested Citation

  • Benazir Basharat & Marek Hudon & Ahmad Nawaz, 2015. "Does efficiency lead to lower prices? A new perspective from microfinance interest rates," ULB Institutional Repository 2013/179160, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/179160
    Note: SCOPUS: ar.j
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    Cited by:

    1. Asongu, Simplice & De Moor, Lieven, 2015. "Recent advances in finance for inclusive development: a survey," MPRA Paper 67299, University Library of Munich, Germany.
    2. Hailu Abebe Wondirad, 2022. "Interest rates in microfinance: What is a fair interest rate when we lend to the poor?," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(6), pages 4537-4548, December.
    3. Jacinta C. Nwachukwu & Aqsa Aziz & Uchenna Tony‐Okeke & Simplice A. Asongu, 2018. "The determinants of interest rates in microfinance: Age, scale and organizational charter," Review of Development Economics, Wiley Blackwell, vol. 22(3), pages 135-159, August.
    4. Simplice A. Asongu & Jacinta C. Nwachukwu, 2018. "Recent finance advances in information technology for inclusive development: a systematic review," Netnomics, Springer, vol. 19(1), pages 65-93, October.
    5. Yuriy Lupenko & Svitlana Andros, 2020. "Modeling the Credit System in the Conditions of Interaction of the Banking Sector with Microfinance Organizations for Financial Support of Agricultural Business," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 74-80, June.
    6. Brijesh C. PUROHIT & S. SARAVANAN, 2018. "Sustainability and efficiency of microfinance institutions in South Asia," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(617), W), pages 97-120, Winter.
    7. Bos, Jaap W.B. & Millone, Matteo, 2015. "Practice What You Preach: Microfinance Business Models and Operational Efficiency," World Development, Elsevier, vol. 70(C), pages 28-42.
    8. Fall, François & Akim, Al-mouksit & Wassongma, Harouna, 2018. "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis," World Development, Elsevier, vol. 107(C), pages 176-188.
    9. Md Aslam Mia & Lucia Dalla Pellegrina & Patrick Damme & Mahinda Wijesiri, 2019. "Financial Inclusion, Deepening and Efficiency in Microfinance Programs: Evidence from Bangladesh," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(4), pages 809-835, September.
    10. Djibril Faye & Zaka Ratsimalahelo, 2022. "Dynamic analysis of the interest rate determinant in microfinance institutions," Working Papers 2022-09, CRESE.
    11. Md. Harun Ur Rashid & Shah Asadullah Mohd. Zobair & Md. Asad Iqbal Chowdhury & Azharul Islam, 2020. "Corporate governance and banks’ productivity: evidence from the banking industry in Bangladesh," Business Research, Springer;German Academic Association for Business Research, vol. 13(2), pages 615-637, July.
    12. Zheng, Chen & Zhang, Junru, 2021. "The impact of COVID-19 on the efficiency of microfinance institutions," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 407-423.
    13. Matthias Staessens & Pieter Jan Kerstens & Johan Bruneel & Laurens Cherchye, 2019. "Data Envelopment Analysis and Social Enterprises: Analysing Performance, Strategic Orientation and Mission Drift," Journal of Business Ethics, Springer, vol. 159(2), pages 325-341, October.
    14. Dawood Ashraf & Muhammad Suhail Rizwan & Barbara L’Huillier, 2022. "Environmental, social, and governance integration: the case of microfinance institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 837-891, March.
    15. María-Celia López-Penabad & José Manuel Maside-Sanfiz & Juan Torrelles Manent & Ana Iglesias-Casal, 2020. "Application of the DEA Double Bootstrap to Analyze Efficiency in Galician Sheltered Workshops," Sustainability, MDPI, vol. 12(16), pages 1-21, August.
    16. Al-Azzam, Moh'd & Mimouni, Karim & Smaoui, Houcem & Temimi, Akram, 2022. "Subsidies vs. deposits and cost inefficiency in microfinance," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 212-235.
    17. Begoña Gutiérrez-Nieto & Carlos Serrano-Cinca & Beatriz Cuéllar-Fernández & Yolanda Fuertes-Callén, 2017. "The Poverty Penalty and Microcredit," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 455-475, September.
    18. Adriana Ramírez Rocha & L. Arturo Bernal Ponce & Mauricio Cervantes Zepeda, 2019. "Differences in the interest rates of microfinance institutions in some emerging markets economies: An HLM approach/Diferencias en las tasas de interés entre instituciones financieras de algunas econo," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 34(2), pages 275-307.
    19. Brijesh C. Purohit & S. Saravanan, 2018. "Sustainability and Efficiency of Microfinance Institutions in South Asia," Working Papers 2018-172, Madras School of Economics,Chennai,India.
    20. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.
    21. María-Celia López-Penabad & José Manuel Maside-Sanfiz & Juan Torrelles-Manent & Carmen López-Andión, 2021. "Performance Evaluation of Sheltered Workshops. Does Legal Status Matter?," Sustainability, MDPI, vol. 13(3), pages 1-18, January.

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