Microfinance Sector Under Pressure Again?

Microfinance industry has come under pressure once again after a gap of five years, bringing to the fore the reality check of actual beneficiaries under its avowed vision for a greater financial inclusion.

While MFIs are vocal about their commitment to reach a wider section of population in rural areas, the unbanked or underserved urban segments, the criticism is mounting that they are driving the poor into a greater debt-trap.

Now that eight major microfinance NBFCs have been granted Small Finance Bank licences by the Reserve Bank of India, their exit is likely to impact the fabric of micro-credit industry.

Among those left out and really working on the ground, some have made their interest rates relatively less but many have kept the cap still higher for their main loan. Except SKS Microfinance, no other MFI provides core loans below the magic figure of 20%. Though RBI stipulates 10% as the margin for MFIs over the interest for capital they borrow, SKS was able to bring down the interest rates to begin with.

Renmaed Bharat Financial Inclusion Ltd., SKS has slashed its interest rates last year to 19.75% on reducing balance though the processing fee stands at 1%. Effectively, it crosses 20% in the first year.

Grameen Koota comes next in the list having slashed its interest rates consecutively for three times since October 2015. Its core loan product carries 22% interest rate.

Annapurna is third in the list charging 23% interest rates while Arohan Microfinance charges 24.99% and Chennai-based Grama Vidiyal charges 25%. Other major MFIs such as Share Microfin and Spandana charge 26% interest rate.

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