Worldwide, microfinance programs tend to have significantly higher interest rates compared to commercial banks. For instance, Grameen Bank’s interest rate is around 20%, while BRAC’s is most probably 25%. Some international microfinance programs even charge higher rates.
One of the primary reasons behind these higher rates is the higher risk and operating expenses involved. However, it’s worth noting that the recovery rate in conventional microfinance is not necessarily poor.
On the other hand, there are examples of Islamic microfinance (interest-free, often based on Qard Hasan, Mudaraba, or Musharaka). A standout case is Pakistan’s Akhuwat Foundation. According to recent reports, their recovery rate is 99.91% and typically remains above 99.90%. In Bangladesh, Islami Bank Bangladesh’s “Rural Development Scheme (RDS)” has a recovery rate of 98%.
Both of these initiatives have substantial outreach. RDS-IBBL is serving over 1.5 million members, while as of September, Akhuwat had nearly 600,000 active loans.