Sensitivity of loan size to lending rates evidence from Ghana's microfinance sector

This study examines the combined effect of interest rates and poverty levels of microfinance clients on loan size. Cross section data on 1800 households (698 clients and 1102 non-clients) from Ghana is used to test the hypothesis of loan price inelasticity. Quantile regression and variants of least squares methods that explore endogeneity are employed. The expected inverse relationship is observed for the poorest specifically, respondents between the 20th to 40th quantile range. Concentrating on different poverty groups of MFI clients, we observe that a change in interest rate leads to varying responses for the demand of loan amount. In view of this, market segmentation based on poverty level is suggested in targeting and sustaining microfinance clients.