Correction and Microcredit

Gleaning knowledge from street discussions and first impressions is, in every sense, qualitative by nature. I make as many mistakes as anybody else in the world. This time I was incorrect to assert that “all Bolivian banks maintain about the same rates of interest; quite frankly, the entire Bolivian banking system has collusion and price fixing written all over it.”

To put my error to rest, I’ve gathered some information published by the Central Bank of Bolivia regarding interest rates on different kinds of loans and savings accounts . The data is not comprehensive, but it does provide a nice overview of current interest rates in most of the major Bolivian banks. I’ll let the reader be the judge as to whether or not the Bolivian banking system “has collusion and price fixing written all over it”.

Commercial Local Currency Commercial Foreign Currency Microcredit Savings Account Local Currency Savings Account Foreign Currency
Average 10.3 10.7 23.8 2.8 .40
Std. Dev. 1.5 1.6 8.2 1.8 .33
Min. 8.47 8.38 13.98 .18 .01
Max. 11.89 13.02 35.61 5.12 1
Sample Size 6 10 6 10 11

The microcredit numbers are interesting.   Right away one notices that the interest rates are relativity high, and the number of lenders in the microcredit field is relatively low.  Because microcredit loans are oriented towards short-term agricultural cycles, the interest rates must be on the high end for the lender to make any money.

I wonder what percentage of farmers are using microcredit to purchase chemical fertilizers and pesticides for their production.   An educated guess tells me that the majority would use microcredit for this purpose.  Another educated guess tells me that the high interest rates deter farmers, who tend to be risk averse, from using microcredit to meet their cash flow needs.

To have a broader social impact, microcredit programs must include training in basic accounting and cash flow analysis, not to mention market and business training to widen the agro-entreprenuer’s perspective on using credit for niche market development.  Such an approach goes well beyond the use of chemical fertilizers for a quick boost in yields.   High interest rates remain an obstacle to the use of microcredit as a viable mechanism for development.

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