When high interest rates are ok

Purchasing a ticket at a vending machine I thought I didn’t have enough coins so my son lent me one franc. Minutes later I found a franc in another pocket and gave it back to him. But then he asked for interest.

I was taken aback and argued that even the smallest Swiss coin (5 cents) would amount to 5% of what he had given to me. Even worse, the annual interest of a 5-minute credit of 1 franc costing 0.05 francs would be a staggering 525’600%. That’s what I would call “usury”.

However, son pointed out that without his contribution I would not have had a ticket and might have risked a fine of 100 francs. 0.05 francs therefore were more than reasonable to offset the risk. And if I had payed back a week later it would have been only 2’600% annual interest rate.

How does this tie into the world of Microcredit? In fragile condition a medical bill can be more than a family can afford on the spot. That’s when every way is fine to quickly raise money regardless of the cost.

(photo by Howard Lake on flickr)

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