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Full and Final Micro Finance

Full and Final Micro Finance

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Published by nishantbali

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Published by: nishantbali on May 25, 2009
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09/29/2014

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Lower microcredit interest rates will help increase of availability of affordable finance for poor
households."Policymaker concern over high interest rates has led many to suggest capping
interest rate by setting rate ceilings. Yet that this is not an appropriate solution, explaining
"Rate ceilings will diminishing the growth of the MFI industry and result in reducing the supply
of microcredit and other financial services, harming rather than helping poor and low income
households." If rates are set to a level less than that required to cover costs, lenders will incur
losses. Not only will this hurt MFIs‘ ability to expand operations, but it will also reduce their
creditworthiness and ability to borrow.

If a rate ceiling is imposed on a state-owned institution, government will have to provide funds
to cover the resulting losses. If the lenders mobilize deposit, microcredit interest rate
ceilings may decrease the saving with MFI‘s, because ceilings depress the profitability and
viability of MFIs, savers may be reluctant to place deposits in them. This further increases the
funding problem while curtailing a valuable service in demand from poor and needy clients.

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