Independent Research and Policy Advocacy

MFI Pricing and Valuation – an analysis of key drivers

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Micro finance interest rates

Pricing is important because it reflects the risks, efficiency and the profitability of the institution and also in some sense reflects an institution’s perspective on these. For a financial institution, perceptions of the risks with its assets, its operating efficiency and the assumptions about ‘reasonable’ returns on capital are all translated into the interest rate. It also reflects the environment in which the organization is operating. For instance, subsidies or taxes by the government affect the pricing in a way that is not directly in the institution’s control. If we hold such external factors constant, variation in pricing provides an interesting point of departure for studying variations among institutions.

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