Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
Is Exchange Rate Risk Priced in Microfinance?
Moh'd Al-Azzam† and Karim Mimouni‡
Misunderstanding of the structure of microcredit interest rates remains a
rich source of generating criticism against the industry high interest
rates. Research has focused its attention on the cost structure of
interest rates and recently on the macroeconomic and macroinstitutional factors. While the cost structure is probably the most
important determinant of interest rates, other factors matter too. This
paper uses an innovative measure of foreign exchange risk to explore
its impact in microfinance. On average, MFIs that operate in countries
with fixed exchange rate regimes tend to charge lower interest rates
than those operating in countries with floating exchange rate regimes.
JEL Classification: G12, G23, F31, F63
Keywords: Microfinance, Interest Rate, Economic Development, Exchange Risk,
Financial Intermediation
†
Assistant Professor of Economics, Department of Finance and Economics, P.O. Box 2713, Qatar
University, Qatar, malazzam@qu.edu.qa
‡
Associate Professor of Finance, Department of Finance and Economics, P.O. Box 2713, Qatar
University, Qatar, kmimouni@qu.edu.qa