Implicit Interest rates in the context of poverty : evidence from housing transactions in Morocco

Dissertant

Amat, Mertou

Thesis advisor

Driouchi, Ahmad

University

Al Akhawayn University

Faculty

The School of Business Administration

University Country

Morocco

Degree

Master

Degree Date

2012

English Abstract

poor people conduct some financial transactions that are informal.

Those people think that interest is not involved in such transactions because it is not explicitly disclosed.

However, there is an implicit interest rate in such operations as they involve money lending throughout time periods.

Moreover, those informal transactions are not specific to a given country or location, but practiced by the poor around the world.

In such contexts, it is believed that the poor are charged higher rates relative to those set by formal markets and in comparison to the non-poor.

The aim of this research is to test the hypothesis that the poor in Morocco are charged high rates when conducting informal deals.

More specifically, this study is about assessing implicit interest rate taking place in traditional housing transactions in Morocco with a look to the determinants of access to these informal markets.

This study focuses on an informal transaction that is the “mortgage” process related to access to traditional housing.

Throughout this study, a model permitting to calculate the implicit interest rate from the traditional-mortgage transaction is developed.

Data about traditional-mortgage amounts, duration, and rental values are collected from samples of 101, 30, 26 and 34 households from Azrou, Salé, Marrakech and Meknes respectively.

The results reveal that this transaction is costly although it involves small amounts of money.

On average, a rate higher than 6% is implicitly implied in a traditional-mortgage transaction.

Information about micro-finance loans are also collected from a sample of 173 respondents (amount borrowed, the monthly installments, and duration).

The effective interest rate in micro-credits in region of Ifrane is 25% that implies to a monthly rate of approximately 2%.

Besides that, 37 respondents are asked to determine the factors that push the poor to accept high costs in the traditional mortgage.

This has revealed that lack of access to the formal financial sector by the poor as well as the unpredictable life incidents are the two factors leading the poor to accept high rates.

Finally, a comparison of implicit interest rates charged in other financing instruments of the poor, and a comparison with other countries are conducted.

The overall results confirm that poor households are implicitly charged higher interest rates in their housing transactions in comparison with the explicit rates charged by formal credit markets, including microfinance.

Main Subjects

Business Administration

No. of Pages

69

Table of Contents

• APA
• MLA
• AMA

Language

English

Data Type

Arab Theses

Record ID

BIM-628571