Microfinance Interest Rates and Client Returns

The interest rates of microfinance institutions (MFIs) are widely criticized, although they are lower than those of many short‐term lenders in ‘developed’ countries. The criticisms are not usually related to the returns on micro‐investments. Little data is available, but earnings from farming seem generally to be below or little above the interest charged for microcredit. Returns from petty trade, a more frequent use of such credit, are well over the price that micro‐borrowers pay for their loans. Microfinance is not a replacement for subsidized farm credit; farming is subsidized, everywhere, and efforts should be made to improve and revive the provision of low‐cost agricultural finance.