Excess Focus on Risk? Non-performing loans and efficiency of microfinance institutions

Dear Colleagues

For more than 25 years I have been involved in microfinance, as a manager, consultant and researcher. What has always been a puzzle to me is why observers always have a lot of focus on assuring low loan default while the focus on the high operational costs is negligible. After all, it is the high operational costs that drives the high lending rates in this industry. Remember, keeping default levels low is costly (screening, monitoring etc.). So I have asked myself this question for long: What is the optimal level of default in microfinance and how is a low default level impacting the operational cost of an MFI? Finally, together with my colleagues Stephen Zamore and Leif Atle Beisland, I found the time (and data) to study this important question in this recently published paper. Check it out.


Best wishes,
Roy Mersland
Professor/Director PhD program
Director Center for Research on Social Enterprises and Microfinance (CERSEM)
School of Business and Law
University of Agder

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