Microcredit interest rates

Abstract

This paper outlines a method for estimating the interest rate that an microfinance institution (MFI) will need to realize on its loans, if it wants to fund its growth primarily with commercial funds at some point in the future. The model presented is simplified. However, it yields an approximation that should be useful for many MFIs, especially younger ones. Each component of the model is explained and then illustrated with the MicroFin (a young institution serving 1,000 active microloan customers) example.

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