ACCV - the journey so far......: Teach a man to fish and charge a fortune for the rod...

I have been trying to wrap my mind around microfinance and how it works. And to be honest it has me somewhat stumped....

I very naively thought that all microfinance loans were given at very low or zero interest.

I was a little more than shocked to find out that the interest rates are extremely high. Apparently the average rates are between 30% - 70% and some are even higher. One company hit the news because they were charging their poverty stricken clients 85% in interest!

I'm not sure why this is, the research I did also states that the default rate on micro finance loans is actually very low, at approximately 1.9%

Let me get this right... help poor people out of poverty by loaning them money to set up a business to earn a living... and charge them a fortune in interest rates?

Am I missing something?

Rose recently told you about one of our blind students Ms Nga and her quest to have a little room of her own. Just a simple place where she can live, socialise and set up her own little business.

We have entered into our first microfinance agreement with Ms Nga and she is now well on her way. Her room is all finished and she's very happy. It's nice for anyone to have a room of their own.

It looks great, and as soon as she has a hundred dollars to buy a massage table (hint, hint) she'll be on her way. She has done very well making her repayments on time.

I never did work out why there was a need for high interest rates.

So we've gone with an interest free loan.

Hope all's well in your world.