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The Impact and Outreach ofMicrofinance Institutions:The Effect of Interest Rates
bySebastian Schwiecker(sebastian.schwiecker {at} helpedia {dot} org)www.helpedia.orgRevised November 2004
This paper was originally submitted in part fulfilment of the requirements for the degree of Diplom-Volkswirt (German equivalent to Master in Economics) from the University of Tübingen in October 2004.
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ContentsContents........................................................................................................1Figures..........................................................................................................3Acronyms.....................................................................................................41. Introduction.............................................................................................52. The Development of Microfinance........................................................7
2.1. What is Microfinance? ....................................................................................................................7 2.2. The Origin of Microfinance ............................................................................................................8 2.3. Microfinance after the Second World War.....................................................................................9 2.4. Microfinance Today.......................................................................................................................11
3. The Impact of Microcredit...................................................................13
3.2. The Eradication of extreme Poverty and Hunger.........................................................................13 3.3. Achievement of universal primary Education ..............................................................................15 3.4. Promote gender Equality and empower Women...........................................................................16 3.5. Reduce Child Mortality and improve Maternal Health................................................................17 3.6. Combat HIV/AIDS, Malaria and other diseases ..........................................................................18 3.7. Ensure environmental Sustainability............................................................................................20 3.8. Develop a global Partnership for Development............................................................................21
4. Microcredit Outreach...........................................................................24
4.1. The Demand for Microcredit.........................................................................................................24 4.2. The Supply of Microcredit.............................................................................................................25 4.3. Meeting the Demand......................................................................................................................26 4.4. Microfinance and the Capital Markets.........................................................................................29
5. Credit Rationing....................................................................................31
5.1. The imperfect Information Paradigm...........................................................................................31 5.2. Adaptation to the Microfinance Sector.........................................................................................33 5.3. Overcoming Credit Rationing for the Microfinance Sector.........................................................35
6. Interest Rates.........................................................................................41
6.1. Setting the right Interest Rate........................................................................................................416.2. Can Micro-Entrepreneurs bear these Rates..................................................................................436.3. Should the Interest Rate be subsidized anyway ............................................................................44
7. Empirical verification...........................................................................46
7.1. Setting up a Sample.......................................................................................................................46
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7.2. Examining the Sample...................................................................................................................47
8. Conclusions............................................................................................52Appendix....................................................................................................54
Appendix 1: Average loan balance.......................................................................................................54 Appendix 2: Portfolio at Risk...............................................................................................................56 Appendix 3: Transaction Costs ............................................................................................................58 Appendix 4: Portfolio Growth..............................................................................................................60 Appendix 5: Portfolio vs. Equity ..........................................................................................................60 Appendix 6: Internal Rate of Return ...................................................................................................61 Appendix 7: Subsidized Interest Rates and the Net Gains to Society..................................................62 Appendix 8: Interest Rate vs. Loan Size vs. FSS vs. PAR...................................................................63 Appendix 9: Inflation vs. GDP per Capita...........................................................................................65
References..................................................................................................67Internet References...................................................................................71Ratings........................................................................................................76Other Sources............................................................................................78
Microfinance
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Sections
« prev | next »- Acronyms
- 1. Introduction
- 2. The Development of Microfinance
- 2.1. What is Microfinance?
- 2.2.The Origin of Microfinance
- 2.3. Microfinance after the Second World War
- 2.4. Microfinance Today
- 3. The Impact of Microcredit
- 3.2. The Eradication of extreme Poverty and Hunger
- 3.3. Achievement of universal primaryEducation
- 3.4. Promote gender Equality and empower Women
- 3.5. Reduce Child Mortality and improve Maternal Health
- 3.6. Combat HIV/AIDS, Malaria and other diseases
- 3.7. Ensure environmental Sustainability
- 3.8. Develop a global Partnership for Development
- 4. MicrocreditOutreach
- 4.1. The Demand for Microcredit
- 4.2. The Supply of Microcredit
- 4.3. Meeting the Demand
- 4.4. Microfinance and the Capital Markets
- 5. Credit Rationing
- 5.1. The imperfect Information Paradigm
- Figure 1: Expected Bank Return and the Interest Rate
- 5.2. Adaptation to the Microfinance Sector
- Figure 2: The extended Model
- 5.3. Overcoming Credit Rationing for the Microfinance Sector
- Figure 3: Marginal Productivity of Capital
- Figure 4: The extended Model
- 6. Interest Rates
- 6.1. Setting the right Interest Rate
- 6.2. Can Micro-Entrepreneurs bear these Rates
- 6.3. Should the Interest Rate be subsidized anyway
- 7. Empiricalverification
- 7.1. Setting up a Sample
- 7.2. Examining the Sample
- Figure 5: Loan Size vs. Interest Rate241
- Figure 6: Interest Rate vs. PAR244
- Figure 7.: Interest Rate vs. FSS247
- 8. Conclusions
- Appendix
- Appendix 1: Average loan balance
- Appendix 2: Portfolio at Risk
- Appendix 3: Transaction Costs
- Appendix 4: Portfolio Growth
- Appendix 5: Portfolio vs. Equity
- Appendix 6: Internal Rate of Return
- Appendix 7: Subsidized Interest Rates and the Net Gains to Society
- Appendix 8: Interest Rate vs. Loan Size vs. FSS vs. PAR
- Appendix 9: Inflation vs. GDP per Capita
- References
- Internet References
- Ratings
- Other Sources
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