An Empirical Research on Interest Rate of Village Banks in China under Sustainable Management

Village banks which are founded in 2007 are increasingly important in promoting the economy of rural areas in China, but the knowledge about the interest rate of small credit is partial and contested due to the deficiency of empirical material. This paper reviews the researches of interest rate of small credit, and then analyzes the interest rate of small credit of the sample village banks by adopting the break-even model and Rosenberg model. Being commercial small credit institutions, village banks should achieve financial sustainability. Therefore, it is necessary for village banks to charge its borrowers a high interest rate for a general loan, and then there is enough interest income which can compensate the management fee, capital cost and expense incurred by the lending.