This past week, we had a researcher from Denmark visit us: Mr. Ole Dahl Rasmussen. I got into a discussion with him about another organization based in Mexico. The Mexican micro-credit organization has over 600 000 clients. I was very impressed until I learned that their interest rate is 100 percent. I could not understand how an organization that was dedicated to helping the poor could charge such high interest rates. It did not make sense to me. Ole was able to explain that there are two schools of thought. One side believes that micro-credit organizations should have low interest rates because it helps the poor more. They believe that it is unethical to make a lot of money from the poor when you say that you are trying to help them. The other side believes that high interest rates attract capital investment and make more money. As a result, they believe that their organization can help MORE people despite the higher rate. They also claim that regardless of the argument, there is obviously a demand for loans with such a high interest rate. Otherwise, they would have no clients. This made me wonder where our interest rate ranked in comparison with others. We have two programs. We charge farmers 1.1% per month on their loans. For trade people, we charge 15% interest per year but they are eligible for up to a 50% refund if they have good repayment. Compare our rates with other areas. The following stats are from CGAP (Occasional Paper #9) provided to me by Ole:
Annual Average Interest rates for micro-finance institutions:
Indonesia: 28-63%
Cambodia: app. 45%
India: 20-40%
Philippines: 60-80%
Bangladesh: 20-35%
While Tthe local market in Thailand my differ from those above, I can see that our interest rates are significantly lower than other areas. Could we charge more? Sure. Do I think we need to? Probably not. However; maybe there will be a day where we will need to make a correction.