High Implicit Interest Rates in the Context of Informal Traditional Housing Transactions: Evidence from Morocco

Abstract: The objective of this research is to investigate the situation of the poor in Morocco through assessing the implicit charges of informal housing transactions in different cities. A model allowing the calculation of the implicit interest rate from the traditional-mortgage transactions is applied. Data about traditional-mortgage housing transactions, duration, and rental values are collected from a sample of households in different cities. The results reveal that these transactions are costly although they involve small amounts of money. On average, a rate higher than 6% but lower than 50 % is implicitly implied in traditional-mortgage transactions. 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. This implies that administrative and economic policies are to be further developed to ensure that poor households can easily access formal credit markets.