MFIs: MFI loan rates rise as lenders assess risk

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Kolkata: Borrowing costs for bottom of the pyramid clients have started to escalate as the regulator removed the margin cap on NBFC MFIs. Some lenders have revised their lending rates up by as much as 350 basis points as they apply risk-based pricing to halt the deterioration in asset quality and loss they have suffered over the past three last years. Several more are expected to follow suit, captains of industry said.

“With interest rate deregulation, we can now assess credit risk. So a new customer would pay slightly higher rates. credit behavior and repayment record,” Arohan Financial Services Managing Director Manoj Kumar Nambiar told ET.

At least half a dozen MFIs, including Arohan, raised their lending rates in the first week of April. They set their rates at 100-350 basis points at 23-24% per annum, excluding processing fees, industry sources said.

“Please remember that the effective median rates of deregulated entities (read: universal banks, small financial banks and non-banking financial companies) were around 24% before the uniform regulation on microfinance,” said Nambiar.

The increase in incremental borrowing costs for MFIs-NBCF is another reason for the sharp change in lending rates.

“The real reason for this is the tightening of market interest rates. Bond yields climbed to 7%,” said Sadaf Sayeed, managing director of Muthoot Microfin.

The microfinance branch of the Muthoot Pappachan group plans to revise its prices from Monday.

The steeper rise in lending rates is likely for new customers with no credit history as risk-based pricing will be introduced as each lender has suffered huge losses over the past three years, the manager said. general manager of an MFI focused on North India.

Credit bureau CRIF High Mark recently reported that around ₹24,500 crore – or 9.3% of the total microfinance portfolio of ₹2.64 lakh crore – remains unpaid even after 180 days from the due date , resulting in high credit costs for all microfinance lenders, including NBFC-IMF, impacting their profits.

“There may be a temporary upward movement, but it will gradually decline. Interest rates will decline with good credit behavior and a good repayment history,” said Vivek Tiwari, managing director of Satya MicroCapital.

Previously, under a regulated rate regime where interest rates charged by MFIs to borrowers were set on the basis of a maximum margin of 10% on the cost of funds, the average interest rate had fallen to 20, 83% in the third quarter of FY22, compared to 23.66% in the second quarter of FY21, sources said. Based on the new uniform regulations, which came into effect on April 1, all lenders engaged in microfinance must put in place a well-documented interest rate model/approach approved by the board of directors to arrive at rates all-inclusive interest.

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