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Zer Netmouse
February 3rd, 2009
07:12 pm

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Do You Believe in Usury?

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From:netmouse
Date:February 4th, 2009 03:20 am (UTC)
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Huh. The South African cap was defined as a multiple of their prime rate according to the paper you reference. An interest cap defined as "ten times the prime rate" is tremendously sensitive to the order of the prime rate. If the prime rate is 1 percent, the cap is 10%, but if the prime rate is 10% the cap is 100%. The paper argues the micro-loan short term (0 - 6 month) lenders needed a 30% interest rate in order to be profitable, but they do not discuss what the actual interest rate cap was during that time.

There is a reason why the "group" microloan system in Bangladesh won the Nobel prize. There are other ways to reduce risk apart from charging higher interest rates.
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