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Thursday, September 21, 2006

Uganda to Cap Interest Rates Charged By Microfinance Institutions

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The Ugandan government capped the interest rate that microfinance institutions may charge.? According to New Vision Kampala, the new rule sets rates at or below inflation, which stood at 8.1% in 2005. ?Microfinance institutions in Uganda currently lend at rates of 18 to 100 percent.

Interest rate caps tend to reduce the supply of microcredit, as fewer microfinance institutions enter the industry and existing ones scale back operations, reports Eric Duflos ?of The Consultative Group to Assist the Poor (CGAP).? Uganda?s President, however, stated August 7, 2006 that ?the aim of microfinance is to boost the productivity of the rural poor rather than turn a profit?. ?Consistent with that belief, he recently criticized the ?high interest rates? in the country (MicroCapital Blog: August 24, 2006).

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