Yes! This is (and I believe would remain to be) one of the most important discussion in the industry — HOW MUCH INTEREST IS TOO MUCH?

I strongly agree that this should depend on CONTEXT. Yet, some would like to give a rough approximation that can work for ‘ALL CONTEXTS’. The best reference to this I think is what Dr. Muhammed Yunus proposed quite recently. He said:

”Cost of money plus 10%, that was the acceptable “green zone” of business. Cost of money plus 15%, and you were entering the yellow zone, bordering on being questionable. More than 15% over the cost of money, and he had no doubts – that was the red zone.”

Perhaps the most difficult question is — MFIs need to expand outreach, and unless these costs are covered by a donor, or a grant, they have to be met from the accumulated surplus that an MFI has built up from the total interest rate paid by customers net of the costs. This involves a choice between current and future clients (or even generations). Should the current clients suffer from higher interest in order to sustain the service to ‘future’ clients (or future generation)?

We have had a number of discussion on this, and it is really a complex complex one. I have summerized such issues in a paper posted at the microfinancegateway.org (recommended papers list) titled

SUSTAINABLE RURALFINANCE: PROSPECTS, CHALLENGES AND IMPLICATIONS.

This paper can be viewed using the following link:

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

Looking forward to hearing from you all.

rgrds

Getaneh Gobezie
tele: 251-911-092033