https://jaydeepmitra.com/
Government tells MFIs to reduce rates

Government tells MFIs to reduce rates



Kolkata: The department of financial services has told senior executives of microfinance institutions (MFI) to lower lending rates to a reasonable level so that the loans become viable for bottom-of-the-pyramid borrowers.This was discussed at a pre-budget meeting Wednesday between senior finance ministry officials and the country’s major MFIs and officials from the two self-regulators for the sector.

“We have informed the government officials that a majority of MFIs keep lending rates between 21% and 24% to which they said this may not be viable for the grassroot borrowers,” a person who attended the meeting said, on the condition of anonymity. “They want us to reduce the rates,” he said.

The meeting was attended by M Nagaraju, secretary, DFS and other senior ministry officials.

The microfinance sector is currently reeling under stress due to a higher rate of default in loan repayment. The sectoral gross non-performing assets ratio rose to an 18-month high of 11.6% at the end of September, according to credit bureau data.


The Reserve Bank of India (RBI) had in November penalised a couple of NBFC-MFIs for charging excessive interest spread over their cost of funds and violating the fair practice code. RBI wants all lenders to be fair, reasonable and transparent in their pricing policy.Senior MFI practitioners present at the meeting said that the interest rates can be brought down only if they get funds for onlending at a cheaper rate.Sa-Dhan, one of the RBI appointed self-regulator, made a pitch for a dedicated fund for MFIs for their onlending, a credit guarantee scheme to help MFIs access credit from the banks and other financial institutions, capacity building of NGOs and smaller development institutions so that they can upgrade themselves into MFIs or can act as financial intermediaries which would enhance the reach of formal credit.

The MFI executives have urged the government officials to consider a special fund for financing poor households in the north-eastern states.

They have also raised the issue related to the qualifying asset norm for NBFC-MFIs, which despite being reduced to 75% from 85%, failed to satisfy them. “The new regulatory framework modified this norm to 75% of total assets as against 85% of net assets. The change in definition from net assets to total assets nullifies the benefit given by relaxing the norms for many lenders. This needs to be relooked,” said Jiji Mammen, executive director at Sa-Dhan. This is however in the RBI’s domain.

The microfinance portfolio stood at Rs 4.14 lakh crore at the end of September 2024, falling 4.3% quarter-on-quarter as lenders across the spectrum slowed down loan disbursement to prevent further asset quality deterioration, according to data from credit bureau CRIF High Mark.



Source link

Spread the word!

Leave a Comment

Your email address will not be published. Required fields are marked *