Dear Colleagues
Consumer finance ... mainly credit cards ... as practiced in the United States has very high interest rates ... and if you convert the various fees that banks charge as well into annual percentage rates and think of these as part of the interest, the situation gets to be ridiculous. Yet this does not get very much attention ... and the high interest rates attributed to the microfinance institutions attracts all sorts of attention.
The problem is that there is confusion about what is being delivered to the client and what the client is paying for these. The money part of the service may reasonably be associated with an interest rate calculation ... but the training and preparation associated with MFI and its client has costs that need to be recouped for sustainability, and are not interest, but may be incorporated in the interest payment to simplify what is going on.
I find the observation by Ralph Campbell very disconcerting ... and while I find the high interest rates charged by some MFIs to be inappropriate and driven by an excessively greedy profit motivation ... there are many MFIs also charging high interest rates that are merely recouping the high cost of what they are doing to deliver a social benefit as well as loan assistance to their clients.
I like numbers ... I am an accountant ... but I like numbers to be used to clarify and to reflect the underlying factual situation, even when it is quite complex.
Peter Burgess
http://communityanalyticsca.blogspot.com
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