Publication: Variations in Microcredit Interest Rates
Date
2008-07
ISSN
Published
2008-07
Author(s)
Kneiding, Christoph
Rosenberg, Richard
Abstract
Global differences in microcredit
interest rates are dramatic. The global average is about 35
percent, but the average in Uzbekistan is above 80 percent,
and in Sri Lanka it is around 17 percent. Small loan sizes
are the most commonly cited reason why microcredit rates are
higher than normal bank rates. Microcredit is a
"high-touch" business, and microfinance
institutions (MFIs) have to process thousands of tiny
transactions. Apparently, there is no single, simple
explanation for the considerable inter-country differences
in interest rates. In addition to small loan sizes, which
undoubtedly are an important driver behind interest rates,
other dynamics are at work. This current research has
already started to address some fundamental questions: 1)
how do borrowers comparably fare in low-interest and
high-interest environments? 2) What is the effect of
competition on MFIs' efficiency? Does more competition
necessarily lead to lower interest rates? 3) How should
public policy exert influence on the domestic microfinance
sector? What are the features of an "appropriate"
regulatory environment?
Citation
“Kneiding, Christoph; Rosenberg, Richard. 2008. Variations in Microcredit Interest Rates. CGAP brief. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/2f8d4590-b740-55ae-a82d-4f0272f54657 License: CC BY 3.0 IGO.”