Cost of Microfinance Borrowing:An Empirical Study on Clients’ Perspective

Many developing countries initiated subsidized credit programs with the objective of creating credit facilities for their rural population. It was realized that some of these credit programs were not effective enough in meeting the requirements of lenders and borrowers, because of large transaction cost and lack of creditability of the borrowers. Microfinance institutions (MFIs) adopted group based lending system with the objective of decreasing transaction costs and other associated problems. The interest rate charged on loans is not the only cost of credit but are other costs associated with it. To evaluate the viability and efficiency of any credit program it is necessary to analyze the costs from the clients' perspective.