Fair interest rates when lending to the poor: Are fair prices derived from basic principles of justice?

Marek Hudon

No 06-015.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: This paper addresses the fairness of prices, with a focus on fair interest rates as they apply to microlending transactions for the poor. Under different assumptions on fairness in interest rate policies and the principles of justice as described in A Theory of Justice (Rawsl, 1976), the paper determines the extent of the ‘just’ range of a price. Using the original notion of fair reservation price and fair bargaining range, it is shown that some unfair considerations can make the fair bargaining range negative. Therefore, we propose an additional criterion for fairness: a fair distribution of the benefits within the fair bargaining range between borrowers and lenders. This new criterion is particularly useful and relevant, at minimum, for socially-minded ones active on the microfinance markets.

Keywords: justice; microfinance; interest rate; principles. (search for similar items in EconPapers)
JEL-codes: L31 M54 O16 Q14 (search for similar items in EconPapers)
Pages: 25 p.
Date: 2006
New Economics Papers: this item is included in nep-fmk, nep-hpe, nep-mfd and nep-pke
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Citations: View citations in EconPapers (1)

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