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Does efficiency lead to lower prices? A new perspective from microfinance interest rates

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  • Benazir Basharat
  • Marek Hudon
  • Ahmad Nawaz

Abstract

Pricing is a central strategic decision for all companies, and is particularly sensitive for social enterprises with both financial and social objectives. High interest rates in microfinance are a topic of intense debate. Using an original database of 291 MFIs, this paper provides empirical evidence of the impact the efficiency of an MFI has on its microcredit interest rate. We use the non-parametric Data Envelopment Analysis (DEA) framework to calculate efficiency and differentiate financial and social efficiency. The results show that financial efficiency has a positive impact on interest rates, with more financially efficient MFIs having lower interest rates, while social efficiency has no impact on microcredit interest rates. Copyright

Suggested Citation

  • Benazir Basharat & Marek Hudon & Ahmad Nawaz, 2015. "Does efficiency lead to lower prices? A new perspective from microfinance interest rates," ULB Institutional Repository 2013/179160, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/179160
    Note: SCOPUS: ar.j
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    Cited by:

    1. Jacinta C. Nwachukwu & Aqsa Aziz & Uchenna Tony‐Okeke & Simplice A. Asongu, 2018. "The determinants of interest rates in microfinance: Age, scale and organizational charter," Review of Development Economics, Wiley Blackwell, vol. 22(3), pages 135-159, August.
    2. Bos, Jaap W.B. & Millone, Matteo, 2015. "Practice What You Preach: Microfinance Business Models and Operational Efficiency," World Development, Elsevier, vol. 70(C), pages 28-42.
    3. repec:eee:wdevel:v:107:y:2018:i:c:p:176-188 is not listed on IDEAS
    4. François-Seck Fall & Akim Al-Mouksit & Harouna Wassongma, 2018. "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis," Post-Print hal-01794625, HAL.
    5. Asongu, Simplice & De Moor, Lieven, 2015. "Recent advances in finance for inclusive development: a survey," MPRA Paper 67299, University Library of Munich, Germany.
    6. repec:spr:soinre:v:133:y:2017:i:2:d:10.1007_s11205-016-1368-4 is not listed on IDEAS
    7. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.

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