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Determinants of Margin in Microfinance Institutions

Author

Listed:
  • Beatriz Cuéllar Fernández
  • Yolanda Fuertes-Callén
  • Carlos Serrano-Cinca
  • Begoña Gutiérrez-Nieto

Abstract

Microfinance institutions (MFIs) lend to the poor, fostering these individuals’ financial inclusion. However, microfinance clients suffer from high interest rates, a type of poverty penalty. Reducing margins and lowering interest rates should be a target for MFIs with a strong social commitment. This paper analyzes the determinants of margin in MFIs. A banking model has been adapted to the case of MFIs. This model has been empirically tested using 9-year panel data. Some factors explaining bank margin also explain MFI margin, with operating expenses being the most important factor. Specific microfinance factors are donations and legal status, as regulated MFIs can collect deposits. It has also been found that MFIs operating in countries with a high level of financial inclusion have low margins.

Suggested Citation

  • Beatriz Cuéllar Fernández & Yolanda Fuertes-Callén & Carlos Serrano-Cinca & Begoña Gutiérrez-Nieto, 2012. "Determinants of Margin in Microfinance Institutions," Working Papers CEB 12-030, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/130924
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    References listed on IDEAS

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    More about this item

    Keywords

    Microfinance institutions; banking; net interest income; outreach; financial inclusion;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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