MFI apex body wants lenders to cut rates

BANGALORE: Sa-Dhan, the apex organisation of micro-finance institutions (MFIs) and self-help groups (SHGs), has suggested moderation of interest rates notably charged by MFIs. The suggestion forms part of the code of conduct (CoC) circulated by Sa-Dhan at its 12th annual general meeting held in Bangalore.

The suggestion on reduction comes at a time when there has been a growing angst at the high rate of interests charged by MFIs. Currently, only two MFIs — Bandhan and Ujjivan have announced a reduction in their interest rates.
Although, MFIs typically borrow from banks at around 10-12%, the ultimate beneficiary(borrower) pays upwards of 2% (or 24% per annum).

“The industry is projecting a 2-3% decline in the effective interest rate. The interest rates should start declining over the next six months. MFIs will have to bear customer interests in their mind and they do not front load and ask for higher processing costs or contributory margins,” said Mathew Titus, executive director of Sa-Dhan.

However, it remains to be seen if MFIs have not just the willingness but also the ability to reduce the interest rates, given that interest rates in the broader economy are slated to go up. Amiya Sharma, executive director of Rashtriya Gramin Vikas Nidhi (RGVN), highlighted the issue of inability of MFIs to lower rates.

“We need a larger scale of operation as small-sized agencies with a portfolio of less than `10 crore may not be able to price their loans cheap. In the north-east, where RGVN operates, there are only two MFIs with a loan portfolio of over `20 crore,” he said.

Sa-Dhan chairperson Jayashree Vyas said as a part of the CoC, MFIs would also have to disclose the salaries paid to their CEOs. As per data released by Sa-Dhan, the loan portfolio of MFIs stood at `18,344 crore as of March 31, 2010, compared with `12,000 crore a year ago.