Kolkata: Micro loans are set to become cheaper with SKS Microfinance, the listed lender to poor individuals, taking the lead among small lenders to cut lending rates. It may reduce rate by as much as 15 basis points as it prepares to protect its turf from the likely emergence of small finance banks soon. “A 10-15 basis points rate cut is a certainty. We will do it in a month,” said Dilli Raj, president, SKS Microfinance. “Keeping lending rate low is our primary strategy,” he said.
SKS, which caters to about 50 lakh small borrowers and has .₹ 6,177 crore of outstanding loans at the end of December last, is the only MFI to lend at sub-20% rate of 19.75%. With borrowing cost set to fall, other MFIs are expected to lower lending rates by 25-50 basis points in the next three to six months. Bank loans are becoming cheaper as they moved to marginal cost-based pricing. MFIs rely on bank loans for on-lending. “The rate transmission will take some time. In the next three to six months, we may see 25-50 bps rate cut across the MFI spectrum,” Raj said, pointing to interest rate differential of 3-4 percentage points between SKS and other leading MFIs. Village Financial Services (VFS) managing director & CEO Kuldip Maity said the impact of new pricing method would be felt strongly after October when fresh bank funding start coming in. “We may then be able to pass on the benefit of lower cost of funds to our borrowers,” he said. VFS, which ended last fiscal with .₹ 247 crore loan book compared with .₹ 107 crore a year ago, lends at a 23% rate. Micro lending has seen around 60% growth for two successive years with the help of liberal financing from banks.
MFIs’ outstanding borrowings now stands at .₹ 36,439 crore, representing an 86% growth, according to Microfinance Institutions Network (MFIN). In the third quarter, micro lenders received a total of .₹ 9,121 crore debt funding from banks as well as other financial institutions. MFI loans grew 84% in the third quarter to .₹ 42,331 crore, MFIN said. The number of beneficiaries grew by a third to 2.88 crore with an average loan size rising to .₹ 17,917 at the end of December from .₹ 14,409 a year ago.