Microcredit Interest Rates

01 November 2002

This paper explains how an MFI should estimate the interest rate on its loans if the institution wants to become sustainable; how to calculate the effective interest yield on loans; and what different loan and repayment methods are used to determine the true rate of interest income received by an MFI. The paper also discusses evidence that MFI clients are capable of paying high interest rates, concluding that MFIs should be able to cover their costs.