Impact of Cost of Credit on Financial Institutions’ Sustainability: A Systematic Review From Global to Local

Abstract

This systematic literature review explores the complex relationship between credit pricing, financial institution sustainability, and borrower outcomes with a specific focus on micro, small, and medium-sized enterprises (MSMEs). Spanning global, regional, and local contexts, the review synthesizes evidence on how interest rates, fees, and risk-based pricing influence bank profitability, asset quality, and long-term resilience. Simultaneously, it examines how credit costs affect access to finance, repayment behavior, and enterprise growth. The review integrates key theoretical frameworks including the Loanable Funds Theory, Credit Rationing, and Entrepreneurship Innovation Theory with empirical insights. It offers policy and operational recommendations aimed at balancing credit affordability with institutional stability. The findings underscore the importance of context-sensitive pricing strategies, operational efficiency, and inclusive policy measures to foster sustainable and equitable credit markets, especially in emerging economies.