If there’s one issue that’s most difficult for microfinance practitioners to explain to the lay public, it’s high interest rates. As Elisabeth Rhyne describes it, at some point the numbers get so high that people become outraged and stop listening altogether. Most recently, the issue was put back in the public eye through Hugh Sinclair’s Confessions of a Microfinance Heretic and the media coverage it has spurred.
With few exceptions, his critique that microfinance investors are investing in MFIs charging exorbitant interest rates has gone largely unanswered. That’s not a tenable position for the long-term. For a socially responsible fund, the case ought to be simple – if you have investments that you’d rather not have to publicly support and explain, then either those investments don’t belong in your portfolio or you should learn how to explain those investments.
Rates in excess of 100% (in APR terms) are not unknown in microfinance. more →