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Bandhan slashes lending rate to 19.1%…….Atmadip Ray
KOLKATA: In A move that could spark off a rate war among microfinance institutions (MFI), Bandhan Financial Services has slashed lending rates by nearly five percentage points to 19.1% from 24% on a reducing balance.
Bandhan’s decision will directly benefit its 25 lakh-odd poor women borrowers. The country’s fourth-largest MFI by outstanding loans said the new rate will be effective May 1.
“We have proved that it’s doable (reducing interest rates),” said Bandhan managing director Chandra Shekhar Ghosh after taking the decision at a board meeting on Monday. “Others should reduce rates too.” In general, leading MFIs offer loans to borrowers at around 24% a year.
Small Industries Development Bank of India, or Sidbi, which supports MFIs with capital support and loans, welcomed the move. “This is what we wanted them to do. We want all MFIs to follow Bandhan,” said Sidbi chief general manager KS Singhwan told ET. Reserve Bank of India too has time and again urged MFIs to reduce rates.
Reacting to the development, micro lender Village Financial Services managing director Kuldip Maity said: “It’s a good sign for the sector. We will look at opportunities to reduce interest rates as well after five-six months.” Village Financial Services cut lending rates in January 2010 to 23% from 28%.
Mr Maity said the lender is negotiating with Sidbi to sell equity to raise capital. If it happens, the MFI will be better placed to reduce rates as its cost of funds will fall.
Mr Ghosh of Bandhan last month had told ET that he was facing difficulty in reducing lending rates as the MFI, on an average, borrows funds from banks at around 13%. “Banks have not changed their rates. But, we have decided to take a knock in our profits to help poor borrowers. Making high profits is not the sole motto for a social organisation like ours,” Mr Ghosh said.
Bandhan said it will henceforth reduce the number of instalments from borrowers to 44 from 45 a year, instead of changing the size of weekly instalment as repayment. Borrowers will now pay Rs 25 a week for 44 weeks.
Sidbi’s Singhwan expects all other MFIs to follow suit. “Ultimately, interest rates have to come down. We understand lenders are considering a rate reduction. It will happen sooner or later depending on their size of business and cost of funds.”
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