Lowering the interest burden for microfinance Online publication date: Sun, 13-Apr-2014
by Insu Song; Carrie Lui; John Vong
International Journal of Process Management and Benchmarking (IJPMB), Vol. 4, No. 2, 2014
Abstract: MFIs have a high interest rate burden due to the small amount per transaction of microcredit and inevitably high operating cost per transaction. To ensure financial viability and to expand the depth and breadth of their operations, MFIs have to adopt cost recovery interest rates on microcredit, hence, MFIs have to charge interest rate high enough, usually substantially higher than the bank loan risk free interest rate. The major factors determining the interest rate on microcredit are the cost of funds, operating costs, loan loss cost and capital for business expansion. To illustrate the impacts of the above factors on interest rate, we present a summary of the current cost structures of microfinance institutes (MFIs) in three Southeast Asia countries, Cambodia, Vietnam and Indonesia. Then, we review existing studies and propose new uses of mobile technologies and financial market innovations for lowering the interest burden.
Online publication date: Sun, 13-Apr-2014
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Process Management and Benchmarking (IJPMB):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email firstname.lastname@example.org