Can a poor person pay off a loan with such a high interest rate?
They can and do. At SKS, re-payment rates are more than 99%. For many poor people, their only option for financial services is a local moneylender who can charge rates as high as 40%-70% or more. Our borrowers can comfortably repay because when they start a micro-business — whether selling vegetables or raising livestock — their return on investment (ROI) is very high, This is because they have low overhead costs, no tax or legal costs, and are able to quickly increase their incomes with even a small amount of start-up capital. Even if a poor person has access to a rural bank, they have to pay transportation costs to reach the branch and often lose wages because of the time spent traveling from village to bank. Considering these factors, the cost of a bank loan, or “total cost of borrowing”, is higher than its stated interest rate. SKS hopes to lower interest rates and has already done so in states where we have reduced our cost of operations. We have urged the Indian government to a
