Ever since microcredit first began to capture public attention 25 years ago, the usual story line has been that it is a tool of extraordinary power to lift poor people—especially women—out of poverty, by funding their microenterprises and raising their incomes.
In many countries, including Uganda, Bangladesh, and Bolivia, microfinance has become more competitive in recent years. Competition is generally expected to benefit consumers by offering a wider choice of appropriate products and providers, better service, and lower prices.
Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their operations financially sustainable by charging interest rates that are high enough to cover all their costs.
This Occasional Paper explains how a microfinance institution (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. This Occasional Paper also discusses evidence that MFI clients are capable of paying high interest rates, concluding that MFIs should be able to cover their costs.
This Occasional Paper addresses issues surrounding measuring microcredit delinquency rates. Not only can poor ratios mislead donors, they can also obscure urgent problems from microfinance institution managers until it is too late to reverse them.
This Donor Brief addresses how donors can support savings and credit cooperatives to increase access to financial services. It highlights the advantages of working with these groups as well as some of the unique challenges of doing so.
Designed as inputs to larger projects with limited life spans, credit components run the risk of failing to provide the intended target groups with permanent access to financial services. This Donor Brief outlines some ways to make the most of credit components and minimize their downsides.
Savings are often the only way poor people can manage to pay for a major life event (such as a marriage or funeral), survive a natural disaster, or take advantage of a business opportunity. This Donor Brief outlines what donors can do to support savings services that help poor people improve their lives.