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Analyzing Microcredit Interest Rates: A Review of the Methodology Proposed by Mohammed Yunus

Analyzing Microcredit Interest Rates: A Review of the Methodology Proposed by Mohammed Yunus

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Date: 
March 2010

MIX Data Brief No. 4: The interest rates charged on microcredit is one of the most-discussed issues in microfinance, capturing the attention of both the media and industry analysts alike. As the financial crisis brings global attention back to lending and credit risk, and microfinance is scrutinized as a tool for providing credit in developing countries, interest rates have once again captured public interest, and alternative models for looking at interest rates and operating costs have received renewed attention. At the heart of this discussion is the question of how microfinance institutions (MFIs) can fulfill their social missions while charging their clients interest rates that are higher than those offered by non-microfinance financial institutions, such as traditional commercial banks. A rhetorical question usually follows: Are high micro credit interest rates not a sign that these institutions that proclaim development objectives are in fact gouging the poor?