Abstract
This study explores the effects of an interest rate ceiling on the sustainability of Microfinance Institutions (MFIs). Based on qualitative research which entailed collection of online data from 53 respondents and in-depth face-to-face interviews with 10 MFI practitioners in Tanzania, it is evident that an interest rate ceiling interferes with competitive market forces. Given that MFIs vary in size, operational capacity, customer segment and business model, applying a single blanket interest rate leads to capital and credit diversion, hidden non-interest charges, the emergence of informal lenders and a black market, the withholding of credit from risky markets and the closure of some MFIs. Accordingly, an interest rate ceiling impairs the sustainability of MFIs and reduces financial inclusion. The study demonstrates that while competition moderate interest rates, non-interest measures can be applied to protect customers from being exploited by unscrupulous lenders.
Recommended Citation
Charles, Goodluck
(2022)
"Effects of Interest Rate Ceiling on Sustainability of Microfinance Institutions: Lessons from Tanzania,"
Business Management Review: Vol. 25:
No.
2, Article 1.
Available at: https://doi.org/10.56279/bmrj.v25i2.1