Difficult to lower interest rates below 20% without access to cheaper funds: MFI heads
microfinance institutions (MFIs) on Friday said that it would be difficult for them to lower interest rates unless they have access to cheaper sources of funds which can be ensured by a dedicated credit guarantee scheme, refinance facility or interest subvention.
The rates charged by microfinance lenders have always been a contentious issue and have again come under regulatory glare following an increase in defaults seen in the sector. Most lenders charge between 21% and 24% a year. The Department of Financial Services at a meeting with MFI heads earlier this week urged them to reduce rates to make the loans viable for borrowers.
«Given the cost structure, it would be difficult for NBFC-MFIs to reduce rates below 20%,» said Sadaf Sayeed, chief executive at Muthoot Microfinance.
He suggested a refinance facility so that MFIs get cheaper funds in line with the housing finance sector where the National Housing Bank runs such a scheme.
Bandhan Bank managing director Partha Pratim Sengupta said the existing credit guarantee scheme under the Credit Guarantee Fund Trust for Micro and Small Enterprises should be revamped to make this suitable for the microfinance industry. The scheme has not seen many takers in the current form due to its cost structure.
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