I’ve heard that MFIs charge a high rate of interest for the loans. Is that so?
Like other financial institutions, microfinance institutions (MFIs) charge interest on the loans they make to their clients. The interest covers the high cost of making very small loans and personally servicing each client every week. It also covers the cost of managing the “centre meetings”; the peer support group process, and providing information on social services, personal development, health and other important data that help clients improve their lives and the future of their families. Their rates are also largely influenced by the rates MFIs themselves pay for borrowing the funds that they in turn lend to their clients. MFI interest rates can range from 18 to 60 percent, depending on the conditions in each MFI’s service area. Without microfinance programmes, the most common alternative for very poor people is the local “money lender,” who regularly charges interest between 120 and 300 percent.
