42nd Midi de la Microfinance et de l'inclusion financière

Watch the video of this Midi


What is the true value of microfinance interest rates?

Luxembourg, January 24, 2018 | ADA examined the subject of interest rates at the 42nd Midi de la Microfinance, organized at Banque de Luxembourg. In front of a full auditorium of 150 people, guest speakers from microfinance institutions (MFIs) and regulators from Africa and Latin America explained the complex equation of interest rate client protection and the performance of "banks for the poor". Veronica Trujillo Tejada, Financial Sector Development Consultant at the World Bank - CGAP, moderated this session with Rosa Pasos, executive member of the National Microfinance Commission (Conami), a regulator of microfinance created 5 years ago in Nicaragua , and Soulemane Djobo, project manager for Africa at ADA Luxembourg.

Competitiveness, transparency and customer protection

In order to establish good practice, in some countries regulation requires setting interest rates for microfinance institutions (MFIs) around the world. This is the case in West Africa, as explained by Soulemane Djobo, where since 2005, the rate is fixed first at 27% and then at 24%. Despite regulation, the sector still maintains strong competitiveness among MFIs, an important factor in lowering prices and giving access to more customers.

In Nicaragua, even if the rate is not subject to any fixing, the regulation focuses on the protection of the customer by ensuring the competitiveness between the actors and the transparency of the MFI towards the customers, as well as customers towards the customer. MFI. "The customer can choose where he wants to borrow, depending on the costs and the support sought," says Rosa Pasos.

The factors that determine the fixed rate are very diverse: financing costs, provision, margin, as well as operational costs. These are the most expensive factor for the MFI. In fact, the management of the file of a customer living often in rural areas, away from the agency, as well as its tailor-made support, generate very high costs for the MFI.

According to Djobo, these staffing and administrative burdens can be reduced in the long run by new technologies that make the credit officer's job easier and more efficient by reaching more clients in less time. By reducing its expenditure, the rate requested by the MFI could therefore also fall.

As the ADA project manager adds, "In reality, the person in need of money will seek access to funds, regardless of the value of the rate, knowing that it will not be served by traditional banks" . This is the added value of microfinance compared to other financial players.

The reminder of the crucial mission is important to point out in front of the international students present in the Auditorium of the Bank of Luxembourg coming to participate in the Certificate in regulation of the inclusive finance of the ADA Chair- Luxembourg, themselves potential future regulators.

Prof. Dirk Zetzsche, ADA Chair in the Faculty of Law, Economics and Finance of the University of Luxembourg concluded the debate by mentioning the importance of taking the discussion on a case-by-case basis, knowing that mentioned factors related to risk, transparency or justified or unjustified costs are adapted to the reality in each country. The 23 countries where the course has been set do not deliver optimal results for either the client or the MFI. In any case, it is therefore difficult to standardize both the regulation and the value of the rate.

42e Midi de la microfinance

Word of the expert

Graphique luc - EN

To find out more about microfinance interest rates, we asked our long-time expert, Luc Vandeweerd, Executive Advisor at ADA, to explain this complex topic.

Rate calculation

In microfinance, the interest rates of a microcredit are set by calculating the overall effective rate which measures the total cost of a credit to the borrower and is generally equivalent to the calculation of interest rates with the management fees of the borrower, and other miscellaneous expenses.

For example, out of 100 € borrowed, an MFI must add many expenses without which the institution could not work:

  • From 12 to 30%: the operational costs of the MFI
  • From 6 to 10%: the financial costs
  • From 2 to 3%: the provision costs of the portfolio at risk (defaulted loans)
  • Finally, the margin that does not exceed 2%

The coverage of all these costs is essential if the MFI wants to sustain its activity.


The notion of transparency is very important for the MFI. Created over the last decade, the Smart Campaign is a network that works with MFIs in order to better protect customers following various drifts and to check if they do not exaggerate the calculated rates of their actual costs.


While transparency is essential for the sector, the capping of usury rates by central banks can also impact the sustainability of MFIs. This is why, in some countries, there are 2 attrition rates: one for banks and another, higher for MFIs.

In practice, however, the rules on usury remain difficult to meet, especially for MFIs that have much higher costs than banks and lower revenues because of lower loan amounts. In the area of ​​the West African Economic and Monetary Union (UEMOA) for example, since 1 January 2014 the rates of attrition have been 15% for banks and 24% for MFIs. They were previously 18 and 27%. This measure should make it possible to reduce the conditions of access to credit for the benefit of households, SMEs and businesses in general.

It is therefore more difficult for an MFI to ensure its operational self-sufficiency, hence its sustainability, by respecting this threshold. Smaller MFIs, with fewer clients and lower credit, need financial support to function.

The microfinance market is clearly not the same as banks. Without MFIs, especially small MFIs, potential clients would go to usurers who apply completely random rates. In addition to loan amounts, which are much lower than in banks, credit terms are different from banks, so the interest burden (and therefore the MFI's revenue) weighs less heavily.

It is important to add that for the sound profitability of the MFI, the credit activity must cover 70% of its activities.

Another important variable that can also lower the financial costs, the use of domestic savings collected from customers, some of whom can come to feed the credits. But this is reserved for MFIs that by regulation can collect savings.

In any case, with the professionalisation of practices and the expansion of specific regulations and control measures, the sector is expanding. In some mature markets, there has even been a drop in rates.

Another more recent phenomenon is loan officers who pay more attention to the products financed and we notice an awareness of local products and short circuits.

In addition, financial education programs for MFI clients should be set up in order to explain the costs associated with supervising the credit granted.


The panelists of this Midi

Dr. Veronica Trujillo Tejada, Financial Sector Development Consultant, World Bank – CGAP, Washington, USA

Verónica is a specialist in Digital Financial Services (DFS) and Financial Inclusion. She works as consultant for the World Bank analyzing policies and regulations to favor DFS development around the world. Her analysis includes infrastructure (financial system and connectivity / technological infrastructure) as well as DFS specific products (e-money, alternative finance, crowdfunding, among others). Previously she worked as a consultant for the Multilateral Investment Fund (MIF, Inter- American Development Bank), leading or participating in many regional projects to support financial inclusion across Latin –America and Caribbean countries. During her work there, she was part of the Global Microscope of Financial Inclusion Team publication, and lead a project to build a regional database on financial institutions sustainability and outreach indicators. 

Verónica is PhD by Salamanca University, holds a Master in International Relations and Diplomacy, and another in Law and Economics. She is a lawyer by the Pontificia Universidad Católica del Perú. 

Rosa Pasos, Executive Member of the National Microfinance Commission (Conami) - Nicaragua 

Rosa's banking experience began having held positions in two national State Banks, and two private banks, one of them as a Board Member of Dutch Investment, concentrating her experience in both corporate credit and investment areas, as well as in of portfolio analysis, and banking institutional strengthening. 

In 1998 she began her practical experience in the field of microfinance, where she held a permanent position for three years, in SIDA, Cooperation of the Embassy of Sweden, in the design of a project of Agricultural Technical Assistance and Rural Finance, within which, among others, the current Association of Microfinance of Nicaragua (ASOMIF) is born. She was also a member of the Board of Directors of the Rural Financial Services Fund financed by IFAD / FAO.  

From her academic specialization in the area of Microfinance, in 2000 she worked as a permanent consultant and specialist in finance and microfinance, having worked on various consultancies for microfinance organizations, microfinance networks; and cooperation programs. 
Since 2012 she is on the Board of the National Microfinance Commission (CONAMI). She represents the private microfinance sector and leads and coordinates an active dialogue and communication between the public institution and the microfinance network and MFIs. 

Isso-Takou Soulémane Djobo - Senior Project Officer, ADA

Before joining ADA, Isso-Takou Soulémane Djobo worked as Director of the Central Africa Regional Office and Regional Thematic Coordinator (Microfinance, Enterprise and Job Creation) of CIDR, Director of the network (FECECAV), Adviser in Rural Credit Training at within the MCA-Burkina Faso project on behalf of Développement International Desjardins (DID), Technical Portfolio Manager (UNCDF) and Director in the Capacity Building Program for MFIs in Francophone Africa (CAPAF) based in Dakar.

Since 2008, Soulémane I.T. DJOBO supports MFIs in all the fundamentals of financial intermediation in sub-Saharan Africa (Central, East, West and Indian Ocean).

Trained as an economist-manager and specialized in agribusiness economics, he worked at the Crédit Agricole National Bank (CNCA Togo) successively at the Small Rural Credit Project (PPCR), then as a loan officer and head of an agency.

He has been involved in Boulder MFT Turin since 2005, where he led all the CGAP's technical themes for MFIs, Donors and Central Banks.

He also acts as training coordinator for the Inclusive Finance Capacity Building Program (PRECAF), a joint initiative of CESAG (BCEAO) and the MasterCard Foundation.

Dirk Zetzsche - Professor of Law, ADA Chair, Faculty of Law, Economics and Finance (FDEF), University of Luxembourg

Prof. Zetzsche studied law at Heinrich Heine University in Düsseldorf, Germany, where he obtained a PhD in law in 2004, after completing his LL.M. at the University of Toronto, Canada. He completed his habilitation thesis (Ph.D. habil.) in 2012, also at Heinrich Heine University, before taking over the Propter Homines Chair of Banking and Securities Law at the University of Liechtenstein. Prof. Zetzsche has served as adviser to and participated in expert working groups initiated by public institutions, such as the Financial Stability Board, European Commission, the European Parliament, the European Securities & Markets Authority, the German Ministry of Justice, the German Ministry of Finance as well as the Liechtenstein government. Prof. Zetzsche is one of the founding directors and chairman of the nomination committee of the Society of Investment Law and contributes to the academic board of the European Banking Institute (EBI) as well as the University of Luxembourg FinTech working group. Prof. Zetzsche holds the ADA Chair for Financial Law at the University of Luxembourg since March 2016. 

Pierre Even hudge 2014

Pierre Even - Head of Relationship Management Private Equity & Real Estate, Banque de Luxembourg

Pierre is Head of Relationship Management Private Equity & Real Estate within Banque de Luxembourg’s Investment Fund practice servicing microfinance and impact fund structures. Over the last 10 years he held various positions within Banque de Luxembourg advising high net worth individuals and professional clients on the feasibility of fund projects and coordinating the legal and operational implementation as well as the launch of their fund. He has expertise in alternative funds (private equity, real estate, sophisticated debt, infrastructure, microfinance…), UCITS funds as well as on funds as wealth structuring tools.

Pierre holds a master’s degree in economics from the University Paul Cézanne Aix-Marseille III and is a member of various industry working groups.

The “Midis de la microfinance” are jointly organised by ADA, the Banque de Luxembourg. They are supported by the Luxembourg Directorate for Development Cooperation and Humanitarian Affairs and InFiNe.lu. The conferences are held during lunch breaks, between 12 and 2 p.m. Their agenda includes the presentation by an inclusive-finance expert of a study or a practical case, which is followed by a Question and Answer session and buffet lunch.


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