The implications of interest capitalization on the profitability of microcredit operations: A case study of Txi Microcrédito in Nampula (2022–2024)

• DOI: https://doi.org/10.22533/at.ed.82081126140111

• Palavras-chave: Capitalization, interest; Implications; Microcredit; Profitability.

• Keywords: Capitalization, interest; Implications; Microcredit; Profitability.

• Abstract:

  This study focuses on the implications of the interest capitalization process on the profitability of microcredit operations, using Txi Microcrédito in the city of Nampula as a case study for the period from 2022 to 2024. The overall objective of the research was to analyze how interest capitalization affects the profitability of microcredit operations. Specifically, it sought to characterize the interest capitalization process, identify the determinants of profitability, and interpret the relationship between capitalization and financial indicators. Methodologically, the study adopted a qualitative approach, framed within an interpretive paradigm, using the inductive method and case study. The research participants included credit supervisors, credit analysts, portfolio managers, administrative assistants, and a regional coordinator from Txi Microcrédito. Data collection was carried out through semi-structured interviews, direct observation, and document analysis, with the data being processed using thematic content analysis. The results reveal that interest capitalization, especially under the monthly compound interest regime, contributes significantly to strengthening institutional profitability, reflecting positively on financial indicators such as operating margin, ROA, and ROE. However, it was found that frequent capitalization increases the effective cost of credit, affecting borrowers' ability to pay and increasing the likelihood of default. It is concluded that interest capitalization has an ambivalent effect, strengthening the financial sustainability of the institution but posing challenges to its social function. The study suggests the adoption of capitalization models that are more adjusted to the socioeconomic reality of customers, greater transparency, and investment in financial education.