Deadweight Loss in the Interest-based and the Interest-Free (Islamic) Microfinance Programs: A Comparative Analysis

Abstract

This paper illustrates the deadweight loss in the Interest-based Microfinance program compared to the interest-free or Islamic Microfinance regarding ‘ consumer’ surplus, producer’ surplus, loan price and the quantity demanded of Microfinance loan’ . It has been prepared based on the secondary data on the twenty Micro finance institutions of the Nine countries of the world and world micro finance data. This paper employs the numerical example and graphical presentation to measure the dead weight loss . This paper finds that, consumer’ surplus is at least 3 times lower in the conventional Microfinance program; producer’ surplus is higher in the Islamic Microfinance than the conventional Microfinance. The loan price is at least 142%-241% higher in conventional Microfinance than the Islamic Microfinance. Besides, the quantity demanded of Microfinance loan is higher in the Islamic Microfinance than the conventional Microfinance. Key Words: Deadweight Loss, Interest-based Microfinance, Interest-free Microfinance, Islamic Microfinance, Consumer and Producer Surplus, Loan price KAUJIE Code: H15, J31 JEL Code: G21, I31, Z12