Interest rate and the social performance of microfinance institutions

The objective of this paper is to examine the effect of interest rate on the social performance of microfinance institutions (MFIs). This objective is pursued by employing data from 555 MFIs operating in 74 countries. The econometric techniques utilized in this paper have produced robust results suggesting that interest rate boosts the social performance (both the breadth and depth of outreach) of MFIs. The paper explains this outcome with no-alternative hypothesis. Clients of MFIs are mostly poor and, thus, lack access to alternative sources of funding. This compels them to access microcredit at any interest rates. (c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.