Does the Macroeconomic Context Affect Microlending Rates? An Investigation of Potential Channels

59 Pages Posted: 29 May 2024

See all articles by Hélyoth Hessou

Hélyoth Hessou

Université de Sherbrooke; Université de Sherbrooke

Hubert Tchakoute Tchuigoua

KEDGE Business School

Abstract

Microfinance institutions (MFIs) are essential for promoting financial inclusion in developing countries but face challenges in staying profitable while serving the poor, especially during downturns. This study examines if MFIs adjust interest rates with the business cycle, hypothesizing higher rates in bad times. Using data from 1,830 MFIs over 16 years (2003–2018), we find a negative relation between interest rates and the business cycle, notably for for-profit MFIs, which raise rates during stress. MFIs using proximity lending or receiving subsidies show less cyclical rate behavior, enhancing stability. Our findings are robust across various methodologies.

Keywords: Business cycle, Microfinance, Microloan rates, Group lending, Subsidy.

Suggested Citation

Hessou, Hélyoth and Hessou, Hélyoth and Tchuigoua, Hubert Tchakoute, Does the Macroeconomic Context Affect Microlending Rates? An Investigation of Potential Channels. Available at SSRN: https://ssrn.com/abstract=4846861 or http://dx.doi.org/10.2139/ssrn.4846861

Hélyoth Hessou (Contact Author)

Université de Sherbrooke ( email )

Sherbrooke, Québec J1K 2R1
Canada
J1K 2R1 (Fax)

Université de Sherbrooke ( email )

2500, boulevard de l'Université, Ecole
de gestion, Campus principal (Pav K1)
Sherbrooke, Québec J1K 2R1
Canada
J1K 2R1 (Fax)

Hubert Tchakoute Tchuigoua

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

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