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Sensitivity of Loan Size to Lending Rates Evidence from Ghana’s Microfinance Sector

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  • Samuel Kobina Annim

Abstract

This paper examines the combined effect of interest rates and poverty levels of microfinance clients on loan size. Cross section data on 2,691 clients and non-clients households from Ghana is used to test the hypothesis of loan price inelasticity. Quantile regression and variants of least squares methods that explore endogeneity are employed. We find the expected inverse relationship only for the 20th to 40th quantile range. The semi-elasticity of loan amount responsiveness to a unit change in interest rate is more than proportionate and significant for the poorest group only. Market segmentation based on poverty level is suggested in targeting and sustaining microfinance clients.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/wp2011/wp2011-03.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Working Paper WP2011/03.

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Length: 31 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:unu:wpaper:wp2011-03

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Keywords: interest rate; sensitivity; loan; poor; microfinance; Ghana;

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  1. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
  2. J. D. Von Pischke, 1996. "Measuring the trade-off between outreach and sustainability of microenterprise lenders," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(2), pages 225-239.
  3. Malika Anand & Richard Rosenberg, 2008. "Are We Overestimating Demand for Microloans?," World Bank Other Operational Studies 9521, The World Bank.
  4. Sharma, Manohar, 2000. "Microfinance," MP05 briefs 0, International Food Policy Research Institute (IFPRI).
  5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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