Which of the following is a limitation of microfinance?

Which of the following is a limitation of microfinance?

• A. It provides unlimited funds
• B. Interest rates can be high
• C. It is always accessible to everyone
• D. It guarantees profits

Answer: (B)

One limitation is that interest rates can be high. Microfinance aims to help people start or grow small businesses by providing small loans, but lenders face higher costs and risks when working with very poor or first-time borrowers. To cover these costs and stay financially sustainable, they often charge higher interest rates. Those higher rates can eat into the profits of a business and make it harder for borrowers to repay, especially if sales are uncertain or markets are tough. While microfinance can increase access to credit where banks won’t lend, it does not provide unlimited funds, is not always accessible to everyone due to barriers like distance or lack of collateral, and it does not guarantee profits—success still depends on the business's performance and external conditions.

One limitation is that interest rates can be high. Microfinance aims to help people start or grow small businesses by providing small loans, but lenders face higher costs and risks when working with very poor or first-time borrowers. To cover these costs and stay financially sustainable, they often charge higher interest rates. Those higher rates can eat into the profits of a business and make it harder for borrowers to repay, especially if sales are uncertain or markets are tough. While microfinance can increase access to credit where banks won’t lend, it does not provide unlimited funds, is not always accessible to everyone due to barriers like distance or lack of collateral, and it does not guarantee profits—success still depends on the business's performance and external conditions.