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Show HONORS COLLEGE SPRING 2013 MICROFINANCE INSTITUTIONS IN LATIN AMERICA AND ASIA: INTEREST RATES AGAINST POVERTY Getzemani Pantoja (Elizabeth Tashjian) Department of Finance University of Utah Microfinance is defined as a "type of banking service that is provided to unemployed or low-income individuals or groups w h o would otherwise have no other means of gaining financial services" by lnvestopedia.com. M u h a m m a d Yunus, founder of the concept of microfinance, believes it is the key to ending poverty. Even though, microfinance has developed and grown into something that can help and touch the lives of unfortunate individuals and groups, microfinance still has failed to reach the ultimate goal of eradicating poverty. Microfinance has developed into different models some of which require a group of individuals, institutions, or online platforms. Throughout this paper, I will describe the impact of microfinance on individuals, but more specifically I will look at different models, both traditional models such as the Grameen Bank, and non-traditional models emerging online. First I had to narrow down my research to Peru and Bangladesh; I choose these two countries because they are c o m m o n to all microfinance institutions researched in this paper. While conducting my research on the different models what I found most interesting was h o w extremely high interest rates are on those w h o take loans from microfinance institutions. Because of these high rates, it makes it difficult to reach the goal of lifting people out of poverty. This led m e to the second part of m y research, which consists of determining why interest rates are high for most microfinance institutions. I used the data I found on interest rates to correlate different factors on the return on equity, return on assets, and risk of loans based on a sample of microfinance institutions in each country in order to see if those and many other factors correlate to higher interest rates. I also conducted regression analysis to try to explain causes for high interest rates in those regions. |
