SKS cuts rates in Andhra for new borrowers

HYDERABAD: SKS Microfinance, which has been in the eye of a storm after the unceremonious exit of its CEO Suresh Gurumani, has slashed its interest rate from 26.69% to 24.55% with immediate effect. However, the cut in rates is only meant for its prospective borrowers in Andhra Pradesh, where microfinance institutions (MFIs) are finding it difficult to conduct routine business after the state government issued an ordinance to regulate their activities.

The country’s largest microcredit lender in terms of assets seems to be in an image-building exercise after it faced flak following Mr Gurumani’s exit. Its CFO Dilli Raj said the company has voluntarily decided to drop the rates keeping in mind the operational scale and the measure would not impact its topline. He refused to comment when asked whether the company would drop rates in other states too. Andhra Pradesh contributes to around 30% of the total business of SKS with 21 lakh borrower customers.

Meanwhile, other microfinance institutes regulated by the Reserve Bank of India are looking at reducing their interest rates after the Andhra government tightened norms of collecting and lending money. “We have set a benchmark of 24% in the view of current situation. Most of members are moving towards offering the same interest rate. Every institution, however, needs to assess its ability to do so,” said Alok Prasad, CEO, MFIN (Microfinance Institutions Network). The self-regulatory body had earlier suggested that it would offer its existing customers an extension of the loan term from 50 weeks to 75 weeks.

The state government has asked MFIs to shift to a monthly repayment system akin to that followed by self-help groups so that the borrower does not feel the pinch. “We are in continuous dialogues with the government and we believe they cannot mandate it. It is up to the borrower to choose between a weekly or a monthly repayment structure,” Mr Prasad said.

Among the major MFIs, Basix claims that it has offered the choice to the borrowers.

MFIs are facing hurdles in recovering money from borrowers in districts like Khammam, Prakasam, Chittoor, Vizianagaram, Srikakulam, Guntur, Karimnagar, Warangal and Visakhapatnam. The high court has ordered MFIs to register themselves with the district and municipal governing bodies within this week.