Use the latest browser recommended by Microsoft
Get speed, security and privacy with Microsoft Edge
Traditional finance theory argues that as the size of a loan obtained from a financial institution increases, the interest rate on that loan rises to accommodate the increased risk associated with the loan. However, utilising firm-level data of the Barbadian banking industry, it is observed that for all six banks studied especially the small ones, the smaller the loan's size, the greater the interest rate applied, and vice versa. Using a fixed effect panel data framework, this study also shows that he interest rate differences among loan sizes can be mainly explained by the demand for smaller loans, administrative expenses and monetary policy as set by the Central Bank.