Loan demand in Jordanian microfinance market: interest rate elasticity and loan-acceptance prediction via logistic regression

Abstract

Currently, more and more competitors enter the Jordanian microfinance market, offering a greater range of differentiated loan products, aggressive interest rates and loan terms. Our goal is to formulate loan-acceptance prediction methods and, ultimately, pricing strategies for Jordanian microfinance products by studying the customer behaviour of one of the three largest microfinance institutions in Jordan with a particular focus on interest elasticity of demand. We examine the hypothesis of a low interest rate elasticity of demand, and the possibility of increasing the interest rate without cannibalizing loan demand. We plan a methodology to pin down average interest rate elasticity by determining the driving factors affecting the demand. The methodologies we use are based on empirical demand studies and a logistic regression dependence model for loan demand. As a by-product of these studies, we provide a data set including 63 different demographic, educational, household, loan, and other characteristics ...