Microfinance is a fabulous idea, but it has been hampered by infrastructure and distribution challenges and high costs relative to loan size, meaning that the world’s poorest people pay some of the highest interest rates for small business loans.
In microfinance, interest rates of around 40% are common. For example, when a lender at Kiva, a website that allows microfinance banks to crowdfund lending capital, makes a zero-interest loan, the end borrower pays an average interest rate of 35% to cover the local intermediary’s overhead costs. Such high costs make it hard for the borrower to profit from taking out a microloan.
For more on this story visit the following link: How fintech and microfinance remove intermediaries and loan costs
Source: International Business Times