Casey Wilson, writing in the CGAP Microfinance Blog points to another side of the debate over interest rates in microfinance. Quoting from his experience with the microfinance sector in China, the author writes about how the lack of investment in critical organisational infrastructure is constraining opportunities for growth of the MFIs in the interiors of China.
If as the author says, the MFI staff have to travel over 100 km to reach their customers, its administrative costs must be very high. In that scenario then, limiting interest rates could make business unviable or just slow-growing. Therefore, there cannot be a universal cap on interest rates in microfinance – it depends on particular business environment.
The post ends with –
“Thus, it is a mistake to think that 1) interest rates on microloans should be judged by a universal standard and 2) that interest rates above a certain threshold (e.g. 20%) indicate that a MFI has lost focus on its mission. MFIs have a responsibility to sustain and scale their operations”
A debate worth having, for sure.