Microfinance: Poor service

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Tiny loans are getting more expensive

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INTEREST on the minuscule loans made by microfinance outfits has always been high, but over the past few years it has become even higher. A recent paper, using data on over 1,500 microfinance institutions (MFIs) from around the world, shows that for the smallest loans, typically less than $150, the average rate climbed steadily from 30% in 2004 to 35% in 2011.*
Even as small loans have become more expensive, they have also become more common. Global microfinance grew by 30% annually from 2004 to 2011, according to figures from MIX Market, a data provider. Strong growth heightened competition and made lenders more confident, says William Ford of MIX. Banks and mid-market MFIs started to poach the poorest clients away from low-end MFIs when they realised that lending to them was viable. The average loan size in the …

Link to article: www.economist.com/news/finance-and-economics/21595470-tiny-loans-are-getting-more-expensive-poor-service?fsrc=rss


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