Earning My Money

At least three MFIs based out of Kolkata are on the verge of slashing lending rates by nearly 500 basis points to 19.1% per annum, on reducing balance from a little less than 24% now. This move will allow them to be at par with Bandhan Financial Services, the leader in the eastern pack. At present, Bandhan offers the cheapest loan among MFIs in the country.

The Reserve Bank of India also seems to be quite pleased with the MFIs in West Bengal. “MFIs here offer loans at comparatively cheaper rates,” a senior RBI official in Kolkata said. Kolkata-based Sahara Utsarga Welfare Society and its associate Destiny Finco have already decided to reduce interest rates to 19.1% from December 1. These two entities collectively have an exposure of around Rs 90 crore.

Village Financial Services, the state’s second-largest MFI by assets, is contemplating reducing rates too. Its managing director & CEO Kuldip Maity told ET that the company would take a final view at its next board meeting on November 19. “We are most likely to lower the rate as our average cost reduced following expansion of business,” he said. Village Financial Services’ outstanding loan portfolio runs to Rs 150 crore.

The rate cuts are happening at the time of tight liquidity and when other borrowers, including retail ones, are seeing their borrowing cost go up. The central bank in its recent monetary policy had increased key interest rates by 25 basis points.

Sahara Uttarayan, another local MFI with Rs 51-crore exposure, plans to withdraw its 1.5% loan processing charge in three phases from January next year. It will, however, keep its interest rate unchanged at around 24% a year on reducing balance.

Incidentally, none of these entities has so far raised capital from private equity players. “MFIs which did not raise capital from private equity players are better placed to reduce lending rates as there is no pressure on them to increase profit margin,” Bandhan CMD Chandra Shekhar Ghosh said.

Sudipta Banerjee, managing director of both Sahara Utsarga and Destiny Finco, said: “Our operation is guided by principles of an NGO or a socially-motivated entity. As we are nearing a Rs 100-crore portfolio, we have decided to pass on the benefit of scale to our customers by lowering rates.”

Earlier, the RBI had told banks to ensure that MFIs they lend to do not charge usurious rates from their borrowers. Around the same time, the Andhra Pradesh government sought to increase its regulation of MFIs by asking entities operating in the state to obtain a registration from the state government.

MFIs in Bengal are reducing rates so that the all-inclusive cost to their borrowers reduce to 24% a year.

Besides charging interest, MFIs also levy a one-time 1% fee on account of processing charge or other charges and 10% security deposit. RBI has recently said the all-inclusive cost to borrowers should be within 24%, although it has not issued any operative guideline to this extent.

SKS Microfinance has slashed interest rates in quick succession over a month to reduce the effective lending rate to 24% from 31.08% (inclusive of insurance and registration charges), following an ordinance passed by the Andhra government to lower interest rates.


Name -Rakesh prasad
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