Lowering the Interest Burden for Microfinance

Chapter
Part of the Topics in Intelligent Engineering and Informatics book series (TIEI, volume 11)

Abstract

MFIs have a high interest rate burden due to the small monetary amount per transaction of microcredit and an inevitably high operating cost per transaction. To ensure financial viability and to expand the depth and breadth of their operations, MFIs have to adopt cost recovery interest rates on microcredit, hence MFIs have to charge interest rate high enough, usually substantially higher than the bank loan risk free interest rate. The major factors in determining the interest rate on microcredit are the cost of funds, operating costs, loan loss cost and capital for business expansion. To illustrate the impacts of the above factors on interest rate, we present a summary of the current cost structures of MFIs in three Southeast Asia countries, Cambodia, Vietnam, and Indonesia. Then, we shall review existing studies and propose new uses of mobile technologies and financial market innovations for lowering interest burden.

Keywords

Microfinance Mobile technologies Insurance Interest burden 

Notes

Acknowledgments

We would like to thank Rajendhar Dayalan, Ramesh Ramachandran, and Kevin Raj, who were involved in the evaluation and development of the mobile banking server and the JCU Singapore student volunteers who helped during the trial. The authors also would like to thank the Republic Polytechnic (RP) students who participated in the trial and the RP staff who organized RP students to participate in the trial and who conducted the survey, in particular, Leslie Sim, Elaine Li, Shamla Ramasamy, Joshua Yeo, and Sim Choon Hou.

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Copyright information

© Springer Science+Business Media Singapore 2015

Authors and Affiliations

  1. 1.Financial IT AcademySingapore Management UniversitySingaporeSingapore
  2. 2.School of Business (IT)James Cook UniversitySingaporeSingapore

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