Cost Structure and Financial Sustainability of Microfinance Institutions: The Potential Effects of Interest Rate Cap in Bangladesh
22 Pages Posted: 15 Aug 2011 Last revised: 4 Jan 2014
Date Written: August 2, 2013
This paper examined the cost structures of 216 MFIs in Bangladesh with a view to determine whether the country’s MFI’s will be able to achieve financial sustainability given the newly introduced interest rate cap. We measured financial sustainability through Return on Assets (ROA) and Operational Self Sufficiency (OSS). The results suggest that there are two key factors that are significantly related to financial sustainability: interest rate spread and general administrative costs. We conclude that MFIs that have lower proportions of administrative costs and a large interest rate spread are more likely to achieve financial sustainability even with the newly introduced interest cap.
Keywords: microfinance, Bangladesh, cost structure, financial sustainability, interest rate cap, interest rate spread, administrative costs, cost of funds, source of funds, operational self sufficiency
JEL Classification: M40, M49
Suggested Citation: Suggested Citation