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The Profit Orientation of Microfinance Institutions and Effective Interest Rates

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  • Roberts, Peter W.

Abstract

With the rise in the number of for-profit microfinance institutions (MFIs), commentators are asking whether the sector benefits by MFIs having stronger profit orientations. We address this question by analyzing the relationship between interest rates and adopting the for-profit legal form, appointing private sector representation and traditional banking experience to advisory boards, and participating in more extensive for-profit networks. The results consistently indicate that a stronger for-profit orientation corresponds with higher interest rates for MFI clients. However, this does not contribute to greater profitability and therefore sustainability because the stronger profit orientation is also associated with higher MFI costs.

Suggested Citation

  • Roberts, Peter W., 2013. "The Profit Orientation of Microfinance Institutions and Effective Interest Rates," World Development, Elsevier, vol. 41(C), pages 120-131.
  • Handle: RePEc:eee:wdevel:v:41:y:2013:i:c:p:120-131
    DOI: 10.1016/j.worlddev.2012.05.022
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    References listed on IDEAS

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    1. Niels Hermes & Robert Lensink, 2007. "The empirics of microfinance: what do we know?," Economic Journal, Royal Economic Society, vol. 117(517), pages 1-10, February.
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    8. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2009. "Microfinance Meets the Market," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 167-192, Winter.
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    Keywords

    microfinance; global; interest rates; nonprofit;

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