Poverty penalty and microfinance

A poverty penalty arises when the poor pay more than the non-poor to access goods and services. An example is the cost to access credit. While still high, microcredit interest rates are lower than the interest rates charged by moneylenders. Microfinance Institutions (MFIs) usually justify the high interest rates on grounds of the high risk involved in microcredit, the high fixed cost associated with small loans and the high financial expenses borne by MFIs given their difficulty in deposit collection. After identifying and quantifying poverty penalty in different countries, this paper focuses on the Colombian case. The study questions the above justifications because the causes are more closely related to a lack of efficiency, and sometimes, to an eager desire for profits.