Competition and microcredit interest rates: international evidence

Moh’d Al-Azzam, Christopher Parmeter

Research output: Contribution to journalArticle

Abstract

The limited number of existing papers that link competition among microfinance institutions (MFIs) and microcredit interest rates, provide inconclusive and counterintuitive results. This paper uses data from 1997 MFIs operating in 109 countries between the years 2003 and 2016 to construct three measures of competition and evaluate their impacts on interest rates. These measures reflect three different aspects of competition: geographical expansion, market concentration, and the marginal pricing. While the results for market concentration are inconclusive, the results for both geographical expansion and marginal pricing show an economically strong impact of competition on interest rates. Specifically, regardless of whether an MFI is a for-profit or nonprofit, we find meaningful evidence that competition reduces interest rates. Our findings evince that lower interest rates are needed if the microfinance movement is to continue to be relied on as an effective means to alleviate poverty.

Original languageEnglish (US)
JournalEmpirical Economics
DOIs
StateAccepted/In press - 2019

Keywords

  • Competition
  • For-profit MFIs
  • Lerner Index
  • Microcredit interest rates
  • Microfinance

ASJC Scopus subject areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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