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SKS Microfinance has cut its interest rate by 1 percentage point to 19.75 per cent. The new rates to be charged for borrowers are effective from December 7. So far, this is the fourth interest rate reduction in the past one year and cumulatively contributed to a 480-bps cut in interest rates.
Dilli Raj, CFO and President, SKS Microfinance, said that the company has passed on the cost advantages it secured from reduction in cost of borrowings as well as improved efficiencies. He cited the raising of funds through commercial paper at 9.5 per cent and refinance through MUDRA at 10 per cent as among the contributing factors to lower funding costs in the recent past. Marginal cost of borrowing, which was at 11.3 per cent at the end of the first half of this fiscal, is expected to be a tad lower now.
Lowest rate Calling the reduction of interest rates below 20 per cent as “breaching a psychological threshold,” MR Rao, MD and CEO, said lower interest rates will also help reduce the political risk for the MFI industry. He said that this was the lowest interest rate charged by any private sector microfinance institution anywhere. Regulatory rules permit the cost of unsecured credit provided by MFIs to be up to 10 percentage points over the cost of borrowing from banks.
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