In the 1980s and 1990s, policymakers took a big leap, arguing that the new microfinance institutions should be profitable -- or in the prevailing code language, they should be “financially sustainable.” The argument for emphasizing profit-making microfinance institutions proceeds in three steps. First, it holds that small loans are costly for banks to administer but that poor households can pay high interest rates. Moneylenders, it is often pointed out, routinely charge (annualized) interest rates of over 100 percent per year, so, it is reasoned, charging anything lower must be a benefit; CGAP (1996) articulates this argument sharply. Within.
