Fix loan margin cap at 12%: Microfinance Institutions Network

Earlier,the interest rate cap on individual loans given by MFIs was fixed at 26 per cent and the margin at 12 per cent. So,the average interest rate on the loans is still limited to the sum of average borrowing costs plus margin or 26 per cent,whichever is lower.

In a circular issued by the RBI on August 3,the caps on margin have been revised to 10 per cent for large MFIs (loans portfolios exceeding Rs 100 crores) and 12 per cent for less than Rs 100 crore.

The average interest paid on borrowings and charged by the MFI are to be calculated on average monthly balances of outstanding borrowings and loan portfolio respectively,the RBI said in the circular.

“What the industry is saying is that the earlier position of 12 per cent which was there before August 3 circular should be restored. The industry is asking to maintain the status quo ante,” Prasad told reporters here.

“The RBI is extremely sensitive to the fact of what is the end client pricing of loan. And the earlier 24 to 26 per cent was very comfortable,” he added.

Replying to a query,he said post AP MFI Act,the Indian microfinance industry size shrunk to Rs 16,000 crore from Rs 26,000 crore in 2010.

“Outside Andhra,with cautious and optimism I would say the industry would grow at 25 to 30 per cent in the current financial year,” he said.

The situation is improving outside Andhra Pradesh and banks and equity participants are showing interest in the industry and funding has selectively started,he said.

On situation in the state,Prasad said the logjam will only be cleared though dialogue which is yet to take place.

After witnessing a spate of suicides of borrowers allegedly due to coercive recovery practices by the MFI agents,the AP government had come out with AP Microfinance Ordinance in October,2010 and subsequently made that into an Act. The Act crippled the activities of all MFIs leaving around Rs 7,000 bad debts in the market.