When is lending just?

Commenting on chapter 2, Debbie asks "what [interest] rate do you feel is too high?" This relates to my user fee post. But the question matters enough to me to deserve its own post. I do not have practical advice for Debbie, who is looking to lend more through kiva.org. But I must confront the challenge of defining just lending in the coming months, as I write the chapter on "development as freedom."Philosophers and religious thinkers have struggled with this question since the dawn of history---check out this papal decision in 1515---so don't expect me to nail it. My sense is that several factors enter the moral calculus:

• The interest rate.
• The transparency of the rates and rules. It is one thing to knowingly pay 100%/year; it is another to agree to do so unwittingly because of hidden fees or complicated and undisclosed penalties.
• Other consumer protections, including prevention of inappropriately coercive collection techniques (hat tip to commenter Lindsey).
• Whether the local credit market is competitive. A creditor who must compete can't extort monopoly profits so easily.
• What it costs to deliver the credit. Costs depend on factors such as population density and the wage level for the skilled workers who staff microfinance institutions.
• Whether the lender has demonstrated culture and practices designed to soften the edges of credit and keep it out of the hands of those at risk of getting into trouble with it, what Gary Woller calls "Social Performance."

It seems to me that much of the moral burden rests on Kiva.org and other intermediaries to develop policies on these issues and explain them to their funders and investors.Thoughts welcome on this tough question.This just in:

Concerns that microcredit interest rates are unjustifiably high don't find much support in the available data, according to a new CGAP report, The New Moneylenders: Are the Poor Being Exploited by High Microcredit Interest Rates.The report finds that while there are a few institutions charging rates that seem unreasonably high, most interest rates seem to be in line with MFIs costs. The report also finds that microcredit rates have been dropping by 2.3 percentage points each year since 2003, much more steeply than the decline of bank loan rates. Administrative costs are also declining along with lenders' profits- the savings are being passed to borrowers.

Note the "most interest rates seem to be in line with MFIs costs." That's the cost argument the pope made 500 years ago.