Macroeconomic factors influencing interest rates of microfinance institutions in the Latin America and the Caribbean

Abstract

Agricultural output in developing countries still represents a substantial part of the GDP. Th is ratio has actually increased in some areas such as the Latin America. As such, there is an increasing importance of microfi nance institutions (MFIs) focusing on the activities associated with agriculture and encouraging entrepreneurship in agriculture and in the rural communities in general. Th e contribution of microfi nance institutions consists mainly in providing special-purpose loans, usually without collateral. However, questions exist as to the magnitude and the adequate level of risk of providing micro-credit loans in relation to the interest rates being charged. We review two main approaches to setting interest rates in the MFIs. One approach takes the view that interest rates should be set at a high level due to the excessive risk that these institutions undertake. Th e second approach is to convince the public of the possibility of reducing these rates through cost savings, increased effi ciency, and sharing best practice, etc. Subsequently we econometrically analyse the impact of macroeconomic factors on the microfi nance interest rates in Latin America and the Caribbean. We show that these results depend on the chosen indicator of interest rate.

External Sources of Fund of Microfinance Institutions (Mfi) in Bangladesh: Do Institutional Characteristics Matter?

“…Modeling Determinants of Sources of Funds Janda and Zetek (2018) used both the factors (internal & external) to develop an econometric model. For deriving such a model, the same method has been followed here.…”

“…The sources of funds for MFI play a vital role on their overall performance. The microfinance industry in Bangladesh optimally utilizes the sources of funds (Mia & Rana, 2018).Costs of funds depend on the sources of funds ,and the fund's sources affect the rate of interest of MFIs (Al-Azzam & Mimouni, 2016;Assefa & Meesters, 2013;Cotler & Almazan, 2013;Dorfleitner & Mosch, 2013;Fernando, 2006;Ghosh, 2013, Heinen & Baquero, 2013Janda & Zetek, 2018;Roberts, 2013). Policymakers and academicians have been considering interest rates as a major issue in microfinance since its inception (Fernando, 2006, Mersland & Khafagy, 2013Rosenberg et al, 2013).…”

Microfinance institutions and the bank lending channel in Asia and Latin America

“…MFIs in different regions present different characteristics, so they might not be affected in the same way by monetary policy restrictions. Despite the fact that the practice of microfinance emerged around the same time in Asia and Latin America, MFIs evolved differently in both regions (Miller, 2003;Weiss & Montgomery, 2005;Servin et al, 2012;Janda & Zetek, 2014). MFIs in Latin American countries have made significant progress in financing via markets and deposits, which made them less dependent on donations and subsidies.…”

Microfinance, the Role and Impact on Macroeconomic Indicators of the Country. Case study: Albania

“…This interaction is inverse, because these institutions affect the growth of GDP, loans given for financial support help the overall economic growth (Maksudova, 2010). Janda and Zetek(2014) have found that macroeconomic factors have a significant impact in influencing interest rates of the microfinance institutions. These factors have a significant impact on the overall profitability of the MFIs.…”