Fairness and Microcredit Interest Rates: From Rawlsian Principles of Justice to the Distribution of the Bargaining Range

15 Pages Posted: 4 Jun 2013

See all articles by Marek Hudon

Marek Hudon

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management

Arvind Ashta

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté

Date Written: July 2013

Abstract

This paper addresses the fairness of microcredit interest rates. Since microfinance institutions provide credit for the poor at relatively high prices, the fairness of their interest rates has been repeatedly debated. We first apply Rawls' principles of justice to the case of microcredit interest rates and suggest some limitations related to the hypothesis of rationality of the borrowers and the level of inequality. We then suggest another framework based on the analysis of the distribution of the benefits generated by the transaction to assess the fairness of interest rates. We conceptualize this as the distribution of the bargaining range between the borrowers' and the institutions' reservation price and discuss what these reservation prices could be in the context of microfinance.

Suggested Citation

Hudon, Marek and Ashta, Arvind, Fairness and Microcredit Interest Rates: From Rawlsian Principles of Justice to the Distribution of the Bargaining Range (July 2013). Business Ethics: A European Review, Vol. 22, Issue 3, pp. 277-291, 2013. Available at SSRN: https://ssrn.com/abstract=2273990 or http://dx.doi.org/10.1111/beer.12026

Marek Hudon (Contact Author)

Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

Arvind Ashta

CEREN EA 7477 Burgundy School of Business - Université Bourgogne Franche-Comté ( email )

29 rue Sambin
21000 Dijon
France

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