Major microfinance institutions (MFIs) are negotiating with banks to get lending rates reduced by 2 to 3 per cent as increasing operating cost environment has made it tough for them. At present, borrowing cost accounts for about 60 per cent of operational cost for these players.

MFIs such as SKS Microfinance, BSFL, Share and Asmitha said they have reduced lending rates at regular intervals and there is no scope to reduce the rates further.

Reacting to a statement by Sa-Dhan, a microfinance network where most players are members, the MFIs said it is not viable to make any more cut in interest rates at present. The industry body had asked MFIs to look at reducing interest rates by 2 to 3 per cent.

These four major MFIs together have outstanding loan of about Rs 10,000 crore and a total client base of 14 million. Most MFIs charge 18 to 30 per cent interest rates.

Dilli Raj, CFO of SKS Microfinance, India’s largest MFI that recently went public, said, “We believe the rate of interest is related to economies of scale achieved in every state. Therefore once we reach a critical mass, we reduce the rates. For instance in Andhra Pradesh, Orissa and Karnataka, we have reduced rates to 26 per cent from 30 per cent.”

Bhartiya Samruddhi Finance (BSFL), the flagship company of Basix group, said it has no intention of reducing interest rate.

According to BSFL, it is difficult for any MFI to digest interest cuts in a rising interest rate environment. Sajeev Vishwanathan, CEO of BSFL, said, “Borrowing costs account for 60 per cent of our cost of operation. Unless this comes down, it is not viable for us to reduce our rate of interest. Banks have to reduce their lending rates first. Also the cost of operations in the areas we operate is very high. We are definitely not looking at reducing interest rates.”

Share Microfinance and Asmitha too said they would look at interest rate cuts subject to banks’ decision on lending rates. Typically, banks lend to MFIs at 12 to 13 per cent.

Udaia Kumar, MD of Share Microfinance, said “Banks lend us at commercial rates. We are lobbying for 2 to 3 per cent cut on lending rates.”

urvashijha@mydigitalfc.com