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WP/03 Sensitivity of Loan Size to Lending Rates: Evidence from Ghana’s Microfinance Sector

This paper examines the combined effect of interest rates and poverty levels of microfinance clients on loan size. Cross section data on 2,691 clients and non-clients households from Ghana is used to test the hypothesis of loan price inelasticity. Quantile regression and variants of least squares methods that explore endogeneity are employed. We find the expected inverse relationship only for the 20th to 40th quantile range. The semi-elasticity of loan amount responsiveness to a unit change in interest rate is more than proportionate and significant for the poorest group only. Market segmentation based on poverty level is suggested in targeting and sustaining microfinance clients.
Publisher:
UNU-WIDER
Series:
WIDER Working Paper
Volume:
2011/03
Title:
WP/03 Sensitivity of Loan Size to Lending Rates: Evidence from Ghana’s Microfinance Sector
Authors:
Samuel Kobina Annim
Publication date:
January 2011
ISBN 13 Web:
978-92-9230-366-2
Copyright holder:
© UNU-WIDER
Copyright year:
2011
Keywords:
interest rate, sensitivity, loan, poor, microfinance, Ghana
JEL:
G20, G29, I30
Project:
African Development: Myths and Realities
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development—DFID).
Format:
online
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