Expanding Loan Options in Rwanda

blue-financialBy David Abraham

Blue Financial, a South African microfinance institution, just launched its Cashxpress product in Rwanda.  The service is intended to help employed, yet low-income, individuals borrow money in emergency situations.  According to the Blue Financial website, Cashexpress is unique since it will disburse unsecured loans of between 100 and 5,000 Rands ($13 to $677 USD) to existing customers who are faced with difficult financial situations, an opportunity that has thus far been the domain of loan sharks in the developing world.  From press and company descriptions, Blue’s product operates similarly to payday loans common in the United States, a service that is often criticized because of the high interest payments charged to borrowers.

While microcredit continues to change lives in the developing world, it is worthwhile to consider these high interest rates.  The published rate on an income generating loan from the Grameen Bank is 20%.  By comparison, Americans pay around 15% on credit card debt.  Of course, the proposition of lending money to people without credit histories or stable incomes involves considerable risk and microfinance companies must factor this into rate calculations.  However, Kiva, the popular social giving site, recognizes that transaction costs account for a significant portion of expenses that microcredit institutions incur (Kiva, like Blue, does not post actual interest rates, an issue of transparency which may be a subject of a future post).  As this field grows in size and popularity, it will be important to search for more efficient ways to deliver loans that ultimately decrease costs for customers.

David Abraham is an MBA candidate at the Robert H. Smith School of Business at the University of Maryland.  He is a founder of the Emerging Markets Club at Smith which seeks to build a greater understanding of free-market opportunites in frontier markets.

The posts on this page are contributed by students from the University of Maryland's Robert H. Smith School of Business in conjunction with the newly launched Center for Social Value Creation. The center's mission is to develop leaders with a deep sense of individual responsibility and the knowledge to use business as a vehicle for social change. These posts are a way to continue the dialogue outside of the classroom and share the viewpoints of Smith students on the challenges and opportunities of triple bottom line thinking.