Paper
Examining Interest Rate Sensitivities among Microfinance Loan Clients in Ghana: Preliminary Results
Assessing elasticity of demand for microloans
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6 pages
This paper reports preliminary findings on a study of the sensitivities of individual microcredit clients to variations in interest rates.
The relationship between interest rates and take-up of loans among potential microfinance clients at varying poverty levels remains largely unexplored. This includes answers to questions about MFIs pricing of loans with the objectives of maximizing repayment rates, profitability, or outreach.
The study consists of a direct-marketing campaign of an individual loan product to small-business owners in the Greater Accra region in Ghana. It includes the collection of demographic, business-related, and socio-economic data about respondents, and tracking of take-up and repayment of loans. Findings indicate that:
- Potential new individual loan clients are sensitive to interest rates;
- Business owners marketed a loan at a 24% flat annual interest rate were significantly more likely to apply for a loan than those marketed higher rates;
- Relatively poorer small business owners, however, do not appear to be sensitive to interest rates;
- Advantage of higher take-up from offering more loans at a lower interest rate outweighs the revenue per loan foregone.
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