Microfinance and Self-Help Groups in India
Interest Rates and Costs
Microloans carry high interest rates because small, frequent loans cost a lot to make, and critics worry about the burden on borrowers.
Why is small credit so expensive?
Costs
Serving many tiny borrowers requires staff, travel and record-keeping.
Rates
Microloan rates are often well above bank loan rates, commonly around 20 per cent or more a year.
Transparency
Borrowers should be told the full cost, including fees.
Debate
Supporters say access matters more than the rate; critics say high rates trap poor families.
Comparing costs
A moneylender may charge much more than an MFI, so the cheaper option still appears attractive to a borrower.
Judging a loan only by its rate
Access and alternatives matter too.
Key takeaways
- Small loans cost more to make.
- Rates are high relative to banks.
- Transparency is important.
- The debate is ongoing.
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