What Drives the Microfinance Lending Rate?

32 Pages Posted: 2 Oct 2012 Last revised: 22 Jan 2013

See all articles by Roy Mersland

Roy Mersland

University of Agder

R. Øystein Strøm

OsloMet - Oslo Metropolitan University

Date Written: September 11, 2012

Abstract

Is the microfinance institution (MFI) able to charge unduly high lending rates and obtain a profitability incompatible with perfect competition? We use a global panel data set of MFIs. The Panzar and Rosse revenue test in static and dynamic versions is employed, together with analyses of price (the lending rate) and return on assets. We control for microfinance specific variables such as average loan and institutional background variables, and also perform estimations in sub-samples of ownership types, regulation, and founder type. We find that the average MFI does not enjoy monopoly market power in its market, but cannot reject that perfect competition or monopolistic competition are better descriptions of the MFI's average market type. The conclusions hold up in both static and dynamic regressions, as well as in different sub-samples.

Keywords: microfinance, pricing policy, dynamics, institutions

JEL Classification: G21, L11, L31

Suggested Citation

Mersland, Roy and Strøm, Reidar Øystein, What Drives the Microfinance Lending Rate? (September 11, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2144618 or http://dx.doi.org/10.2139/ssrn.2144618

Roy Mersland

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

HOME PAGE: http://www.uia.no/microfinance

Reidar Øystein Strøm (Contact Author)

OsloMet - Oslo Metropolitan University ( email )

P.O. Box 4
Oslo, 0130
Norway
+47 97968500 (Phone)

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