Whats the trend—are rates moving up or down?
Actually, it’s surprising how fast microcredit rates have been dropping—3.3 percentage points per year from 2000 to 2005. I’d guess that most of this drop is a reflection of the learning curve as new MFIs figure out how to squeeze down their operating costs. But some of it is because of competition, which has been heating up in the countries where the industry is most advanced. Competition will certainly get more intense over the next decade, exerting more downward pressure on rates. 3. Are the rates unreasonable? Are poor borrowers being gouged? That’s the most important question, isn’t it? Obviously, we can’t expect a one-size-fits-all answer: it would depend on a detailed analysis of each MFI, its market, and its borrowers. CGAP argued in a recent paper [CGAP Reflections on the Compartamos Initial Public Offering] that the Compartamos interest rate has been a lot higher than it should have been, but that’s an exceptional case. The picture differs widely by institution, and by countr
