High Interest Rates in Microfinance Banks

Compared to traditional banks, microfinance banks are imposing high-interest rates on their clients. CHIEF Executive Officers of Microfinance Banks (MfBs) has associated the high-interest prices to the costs incurred to when doing business in the sub-sector. The executives noted that compared to other commercial banks, the microfinance institutions lack the access to cheap funds and they spend more resources when serving one customer compared to the commercials banks. The executives in these institutions are mostly in service of customers who are not in the mainstream banking, and due to the physical interventions involved, the administrative costs of MFBs becomes high.

According to Managing Director/CEO, NPF MfB Plc, Mr. Akin Lawal, low public confidence in the subsector is one of the main reasons why the interest rates are high. When a client brings in money to MFB, the cost of the fund is already high compared to the traditional banks. A lot of collateral substitutes is involved, and with required supervision, the costs incurred are further increased. However, the Managing Director, Supreme Microfinance Bank, Mr. Jide Aremo explained that the interest rate would not remain high forever. The executives noted that although people save their money in commercial banks, they get to microfinance banks when they are in need of credit loans. If they kept the money in microfinance banks, then the interest rates would be lower.


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