Answer to Question #316713 in Finance for Robert

Question

What kind of factors might affect attitudes towards charging sustainable interest rates by Microfinance Institutions in the Kenyan market environment? How can an MFI/or Deposit Taking Microfinance (DTM) overcome negative attitudes towards such rates? Construct an argument to discuss with someone who holds such attitude in Kenya today

Answer 1

Some of the factors that contribute to negative attitudes towards the sustainable interest rates of microfinance institutions include the lower interest rates of mainstream banks and lack of financial literacy. The interest rates of banks and other mainstream financial institutions are significantly lower than those of microfinance institutions, hence the negative attitudes by most Kenyans. Moreover, lack of financial awareness on the sustainable lending rates of microfinance contributes greatly to this attitude; they do not understand why MFI charge such kind of interests. There are different ways that MFI can use to change these attitudes towards their interest rates. They include group lending to reduce default risk and sensitizing Kenyans on the reason for higher lending rates in MFI.