How do microfinance institutions generally calculate their interest rates?

• A key factor often overlooked when judging interest rates is the local context. In general, interest
• rates in developing countries are much higher than in Europe or North America. The local commercial market is the first factor considered.
• Additional factors: cost of funds, administration, size of loan (it costs more to disburse several small loans than one large), risk, level of support end-client needs (financial education, group support, collections), access to technology, rural or urban location (transportation, time for loan officers). Sometimes high transaction costs translate to high interest rates. It's essential these rates are fair, and the reasoning behind them is transparent.
• While Oikocredit's focus is on poverty reduction, we are not a charity. As such, we acknowledge the need for an MFI's own stable financial results to ensure the sustainability of its operations. However, there is an essential difference between profit making and profit maximization.