High microcredit interest rates cause fierce debates among practitioners, scholars and even the general public. To objectify these discussions, this article investigates determinants of microcredit interest rates by using a worldwide data set of 712 microfinance institutions (MFIs). We examine how cost factors, gender, regulation, lending methodology and organizational type affect microcredit interest rates. Controlling for other microfinance- and country-specific factors, we identify the operating expenses as the main factor influencing microcredit interest rates. Furthermore, our findings show that MFIs tend to subsidize interest rates charged with income from investments not related to their lending activities.
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