Differences in the interest rates of microfinance institutions in some markets economies: An HLM approach

  • Adriana Ramírez Rocha Tecnológico de Monterrey
  • L. Arturo Bernal Ponce Tecnológico de Monterrey
  • Mauricio Cervantes Zepeda Tecnológico de Monterrey
Keywords: microfinance institutions, IMFs interest rates, hierarchical linear modeling, government effectiveness, emerging markets economies
JEL Classification: G21, E43, C55

Abstract

In this study, we analyzed the differences in the interest rates of microfinance institutions (MFIs) of some countries in Latin America, Africa, Eastern Europe and Asia. We found that the operating expenses are essential drivers of these interest rates. We also found that operating expenses, average loan per borrower, real growth GDP, and government effectiveness, are key factors that explain differences in interest rates. We use apply Hierarchical Linear Modeling (HLM) to analyze these differences.

References

Albright, J.J, and D. Marinova, 2010. Estimating multilevel models using SPSS, Stata, SAS, and R, www.indiana.edu/ statmath/stat/all/hlm/hlm.pdf.

Balammal, A., R. Madhumathi, and M. Ganesh, 2016. Pentagon performance model of Indian MFIs, Paradigm, 20(1): 1-13.

Basharat, B., M. Hudon and A. Nawaz, 2015. Does efficiency lead to lower prices? A new perspective from microfinance interest rates, Strategic Change, 24(3): 49-66.

Bogan, V.L. 2012. Capital structure and sustainability: An empirical study of microfinance institutions, Review of Economics and Statistics, 94(4): 1045-1058.

Bos, J.W.B. and M. Millone, 2015. Practice what you preach: Microfinance business models and operational efficiency, World Development, 70: 28-42.

Campbell, G. 2010. Microfinancing the developing world: How small loans empower local economies and catalyse neoliberalism’s endgame, Third World Quarterly, 31(7): 1081-1090.

Castro, M. and L. Lizasoain, 2012. Las técnicas de modelización estadística en la investigación educativa: minería de datos, modelos de ecuaciones estructurales y modelos jerárquicos lineales, Revista Española de Pedagogía, 70(251): 131-148.

Cotler, P. and D. Almazan. 2013. The lending interest rates in the microfinance sector: searching for its determinants, Journal of CENTRUM Cathedra: The Business and Economics Research Journal, 6(1): 69-81.

Cotler, P. and E. Rodríguez Oreggia. 2008. Rentabilidad y tamaño de préstamo de las microfinanzas en México, Economía Mexicana, 17(2): 149-169.

Cuéllar-Fernández, B., Y. Fuertes-Callén, C. Serrano-Cinca and B. Gutiérrez-Nieto. 2016. Determinants of margin in microfinance institutions, Applied Economics, 48(4): 300-311.

Cull, R., A. Demirgüç-Kunt and J. Morduch. 2009. Microfinance meets the market, Journal of Economic Perspectives, 23(1): 167-192.

Cull, R., A. Demirg¨u¸c-Kunt and J. Morduch. 2014. Banks and microbanks, Journal of Financial Services Research, 46(1): 1-53.

Dempster, A.P., N.M. Laird and D.B. Rubin. 1977. Maximum likelihood from incomplete data via the EM algorithm, Journal of the Royal Statistical Society. Series B (Methodological), 39(1): 1-38.

Dorfleitner, G., M. Leidl, C. Priberny and J. von Mosch. 2013. What determines microcredit interest rates? Applied Financial Economics, 23(20): 1579-1597.

Garson, G.D. 2013. Hierarchical Linear Modeling: Guide and applications, Sage Publications, Thousand Oaks, CA.

Gaviria, J.L. 2000. Cambios en las técnicas cuantitativas de investigación socioeducativa, XII Congreso Nacional y II Iberoamericano de Pedagogía, Madrid, Proceedings, 39-45.

Gelman, A. and J. Hill. 2006. Data Analysis Using Regression and Multilevel/Hierarchical Models (Analytical Methods for Social Research), Cambridge University Press, New York.

Guo, L. and H. Jo. 2017. Microfinance interest rate puzzle: price rationing or panic pricing? Asia-Pacific Journal of Financial Studies, 46(2): 185-220.

Hitt, M.A., P.W. Beamish, S.E. Jackson, and J.E. Mathieu. 2007. Building theoretical and empirical bridges across levels: Multilevel research in management, Academy of Management Journal, 50(6): 1385-1399.

Huta, V. 2014. When to use hierarchical linear modeling, The Quantitative Methods for Psychology, 10(1): 13-28.

Juárez, E. 2016. Microcréditos podrían encarecerse por alza de tasas: Gentera. Media release, 1 November, El Economista, www.eleconomista.com.mx/sectorfinanciero/Microcreditos-podrian-encarecerse-por-alza-de-tasas-Gentera-20161101-0230.html. Viewed September 29, 2017.

Kar, A.K. 2013. Mission drift in microfinance: are the concerns really worrying? Recent cross-country results, International Review of Applied Economics, 27(1): 1-17.

Kar, A.K., and R. Bali Swain. 2014. Interest rates and financial performance of microfinance institutions: recent global evidence, The European Journal of Development Research, 26(1): 87-106.

Kar, A.K., and R. Bali Swain. 2018. Competition, performance and portfolio quality in microfinance markets, The European Journal of Development Research, Forthcoming.

Kneiding, C., and R. Rosenberg. 2008. Variations in Microcredit Interest Rates, CGAP brief, World Bank, Washington, DC.

Leckie, G. 2010. Module 5: introduction to multilevel modelling, (Stata Practical), [Teaching Resource], Centre for Multilevel Modelling, University of Bristol.

MIX Market Intelligence (2017). Cross market analysis. Data sets for each year may be found at https://www.themix.org/mixmarket/data-and-analysis#analytical-tools.

Morduch, J. 2000. The microfinance schism, World Development, 28(4): 617-629.

Navajas, S. and S. Tejerina. 2006. Microfinance in Latin America and the Caribbean: how large is the market? Sustainable Development Best Practices Series, IADB, Washington, DC.

Nwachukwu, J. 2014. Interest rates, target markets and sustainability in microfinance, Oxford Development Studies, 42(1): 86-110.

Pardo, A., M.A. Ruiz and R. San Martín. 2007. Como ajustar e interpretar modelos multinivel con SPSS, Psicothema, 19(2): 308-321.

Patiño, A.O. 2010. El modelo MIFE como instrumento para la formalización del empresariado. Una aplicación para las microempresas informales de Bogotá, unpublished doctoral dissertation.

ProDesarrollo 2014. Benchmarking de las microfinanzas en México 2013-2014. Un informe del sector, ProDesarrollo 2013-2014 Annual Report.

Reilly, F. and K. Brown. 2012. Investment Analysis and Portfolio Management, South-Western, Cengage Learning.

Roberts, J.K., J.P. Monaco, H. Stovall and V. Foster. 2011. Explained variance in multilevel models, in J.J. Hox and J.K. Roberts (eds.), The Handbook of Advanced Multilevel Analysis, Taylor and Francis e-Library.

Roberts, P.W. 2013. The profit orientation of microfinance institutions and effective interest rates, World Development, 41: 120-131.

Snijders, T. and R. Bosker. 1999. Multilevel Analysis: An Introduction to Basic and Advanced Multilevel Modeling, Sage Publications Ltd, Thousand Oaks, CA.

Sun, S.L. and J. Im. 2015. Cutting microfinance interest rates: an opportunity co-creation perspective, Entrepreneurship: Theory and Practice, 39: 101-128.

Trujillo, V., F. Rodriguez-Lopez and V. Muriel-Patino. 2014. Microfinance regulation and market development in Latin America, The B.E. Journal of Economic Analysis and Policy, 14(4): 1615-1644.

Vanroose, A. and B. D’Espallier. 2012. Do microfinance institutions accomplish their mission? Evidence from the relationship between traditional financial sector development and microfinance institutions’ outreach and performance, Applied Economics, 45(15): 1965-1982.

Woller, G. M., C. Dunford and W. Woodworth. 1999. Where to microfinance? International Journal of Economic Development, 1(1): 29-64.

World Bank (a) (ND). World Development Indicators, obtained from: https://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.

World Bank (b) (ND).World Governance Indicators, obtained from: http://info.worldbank.org/governance/wgi/index.aspx#home.

Xu, S., J. Copestake and X. Peng. 2016. Microfinance institution’s mission drift in macroeconomic context, Journal of International Development, 28(7): 1123-1137.

Published
25-06-2019