Are the Poor Being Exploited by High Microcredit Interest Rates?
In today’s microfinance industry, there is still some debate about whether and when long-term subsidies might be justified in order to reach particularly challenging groups of clients. But there is now widespread agreement, within the industry at least, that in most situations MFIs ought to pursue financial sustainability by being as efficient as they can and by charging interest rates and fees high enough to cover the costs of their lending and other services. Nevertheless, accepting the importance of financial sustainability does not end the discussion of interest rates, and where to draw the line is a complex issue. An interest charge represents money taken out of clients’ pockets, and it is unreasonable if it not only covers the costs of lending but also deposits “excessive” profits into the pockets of an MFI’s private owners. Even an interest rate that only covers costs and includes no profit can still be unreasonable if the costs are excessively high because of avoidable ineffici
