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Interest rates in community-managed microfinance: How the poorest Africans earn sixty percent return on their savings

Author

Listed:
  • Rasmussen, Ole Dahl

    (Department of Business and Economics)

Abstract

It is common to see the interest rate on savings in community-managed microfinance being reported as "20-30% annually". Using panel data from 204 groups in Malawi, I show that the right figure is likely to be at least twice this figure. This is due to sector-wide application of non-standard interest rate calculation and unrealistic assumptions about the savings profile in the groups. In the 204 groups, the annual interest rate on savings is 63%. For transparency and accountability donors, politicians and practitioners should change their interest rate calculations. Furthermore, the proposal method will allow practitioners to better monitor group performance.

Suggested Citation

  • Rasmussen, Ole Dahl, 2012. "Interest rates in community-managed microfinance: How the poorest Africans earn sixty percent return on their savings," Discussion Papers on Economics 9/2012, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2012_009
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    More about this item

    Keywords

    Microfinance; interest rates; performance monitoring; community-managed microfinance; village savings and loan associations; Malawi; NGO;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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