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Determinants of Margin in Microfinance Institutions

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

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.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 12-030.

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Length: 23 p.
Date of creation: 30 Oct 2012
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Publication status: Published by:
Handle: RePEc:sol:wpaper:2013/130924
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