The Determinants of Interest Rates in Microbanks: Age and Scale

African Governance and Development Institute WP/15/004

35 Pages Posted: 1 Mar 2015

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Jacinta Nwachukwu

University of Huddersfield - Business School

Date Written: February 26, 2015

Abstract

This study investigates the legitimacy of the relatively high interest rates charged by those microfinance institutions (MFIs) which have been transformed into regulated commercial banks using information garnered from a panel of 1232 MFIs from 107 developing countries. Results show that formally regulated micro banks have significantly higher average portfolio yields than their unregulated counterparts. By contrast, large-scale MFIs with more than eight years of experience have succeeded in lowering interest rates, but only up to a certain cut-off point. The implication is that policies which help nascent small-scale MFIs to overcome their cost disadvantages form a more effective pricing strategy than do initiatives to transform them into regulated institutions.

Keywords: Microfinance, microbanks, non-bank financial institutions, interest rates, age, economies of scale, developing countries

JEL Classification: G21; G23; G28; E43; N20

Suggested Citation

Asongu, Simplice and Nwachukwu, Jacinta C., The Determinants of Interest Rates in Microbanks: Age and Scale (February 26, 2015). African Governance and Development Institute WP/15/004. Available at SSRN: https://ssrn.com/abstract=2571829 or http://dx.doi.org/10.2139/ssrn.2571829

Simplice Asongu

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Jacinta C. Nwachukwu (Contact Author)

University of Huddersfield - Business School ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

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