Thank you for this. This is one of the most important and controversial issues in the industry. Here it may not be necessary to go in detail about all the factors that should go into interest rate computation. It is good to focus on the operational costs, particularly labour, which according to recent MIX statistic constitute some 63%. ….. Indeed, some of the points that are often missed when talking about interest rate on micro-loans are the fact that they very much depend on the loan size, the administrative costs (which depend on the geography, credit culture, etc), and the cost of living (and hence the pay structure of officers). Failure to take these critical factors would lead into wrong conclusion about which MFI is efficient or not. ….. It is worth noting that some rating companies are now giving such biased conclusions about the MFI they are rating!!…. I have posted my paper dealing on this very issues on the CGAP/microfinancegateway.org’s (recommended) reading list. The paper, titled: SUSTAINABLE RURAL FINANCE: PROSPECTS, CHALLENGES AND IMPLICATION, can be veiewd from the following link:

http://www.microfinancegateway.org/p/site/m/template.rc/1.11.49870/

I look forward to hear from you.

rgrds,

Getaneh Gobezie
tele: 251-911-092033