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Sensitivity of Loan Size to Lending Rates Evidence from Ghana’s Microfinance Sector

  • Samuel Kobina Annim

This paper examines the combined effect of interest rates and poverty levels of microfinance clients on loan size. Cross section data on 2,691 clients and non-clients households from Ghana is used to test the hypothesis of loan price inelasticity. Quantile regression and variants of least squares methods that explore endogeneity are employed. We find the expected inverse relationship only for the 20th to 40th quantile range. The semi-elasticity of loan amount responsiveness to a unit change in interest rate is more than proportionate and significant for the poorest group only. Market segmentation based on poverty level is suggested in targeting and sustaining microfinance clients.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/wp2011/wp2011-03.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Working Paper WP2011/03.

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Length: 31 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:unu:wpaper:wp2011-03
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  1. Levine, Ross & Loayza, Norman & Beck, Thorsten, 1999. "Financial intermediation and growth : Causality and causes," Policy Research Working Paper Series 2059, The World Bank.
  2. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
  3. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
  4. Malika Anand & Richard Rosenberg, 2008. "Are We Overestimating Demand for Microloans?," World Bank Other Operational Studies 9521, The World Bank.
  5. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
  6. J. D. Von Pischke, 1996. "Measuring the trade-off between outreach and sustainability of microenterprise lenders," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(2), pages 225-239.
  7. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  8. Karlan, Dean S. & Zinman, Jonathan, 2007. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," CEPR Discussion Papers 6071, C.E.P.R. Discussion Papers.
  9. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
  10. Sharma, Manohar, 2000. "Microfinance," MP05 briefs 0, International Food Policy Research Institute (IFPRI).
  11. repec:ner:tilbur:urn:nbn:nl:ui:12-3125519 is not listed on IDEAS
  12. Carla Henry & Manohar Sharma & Cecile Lapenu & Manfred Zeller, 2003. "Microfinance Poverty Assessment Tool," World Bank Publications, The World Bank, number 15065, November.
  13. Briones, Roehlano, 2007. "Do Small Farmers Borrow Less when the Lending rate Increases? The Case of Rice Farming in the Philippines," MPRA Paper 6044, University Library of Munich, Germany.
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