Microfinance rates can be cut if banks lower interest : Apex body

Microfinance institutions are ready to cut lending rates by as much as 2.50 percentage points provided banks reduce the cost of money for these institutions by a similar quantum, according to a senior official of the industry association of MFIS.
The 12-13% interest on loans taken from banks is the single biggest cost for MFIS and this presents them a challenge in bringing down lending rates, said Mr.Alok Prasad, CEO, Microfinance Institutions Network (MFIN), the apex industry body.
MFIN is a self-regulatory organisation representing the interests of MFIS that are registered as non-banking finance companies (NBFC-MFIS)with the RBI.Its members represent about 80% of total outstanding micro loans in the country.
MFIS are in the eye of the storm as negative perception has gained ground that they are creaming off profits by charging high interest rates on loans given to small borrowers and also for resorting to strong -arm tactics while making recoveries.
Recently, the Reserve Bank of India(RBI) has set up a committee to study the issues and concerns in the microfinance institutions (MFI) sector, including ways and means of making interest rates charged by them reasonable.
The RBI regulates only those MFIS that are registerted with it as non-banking finance companies.Although the registered companies cover over 80% of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIS in the country. The Central Bank, however, does not prescribe lending rates for these institutions. ( BL20.10.2010)

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