Bengluru: SKS Microfinance Ltd has slashed the interest rates it charges borrowers by 1.25 percentage points or 125 basis points (bps) for some borrowers. Starting October, poor women will pay 20.75% annually along with the monthly or weekly repayments of the petty loans they take.

This is the third interest rate cut by the company since October with an overall reduction of 3.8%. Most of the microfinance companies charge interest rates around 22-24% on loan amount of 10,000-15,000. These loans are given out to women in a groups, so that they take each other’s responsibility of repayment as well as motivate each other to use the money for income generation.

One basis point is equal to one-hundredth of a percentage point.

“This is the lowest rate among global micro finance institutions on its core income generating loans which are unsecured micro loans. In fact, the company has been charging the lowest interest among Indian MFIs since July 2015," SKS said in a statement on Wednesday.

The gross loan portfolio of the company outside Telangana and Andhra Pradesh as of June is 4,797 crore, with the highest exposure in Odhisha, Karnataka and Maharashtra.

“Even outside the cut, SKS was still charging lowest in the segment interest rates. Given a cap on margins of 10% and reduced borrowings rate, the reduction is in tandem," said Nilesh Parikh, associate director, Edelweiss Financial Services.

The reduction has been possible for SKS because of a combination of various factors like lower cost of borrowings and operational efficiencies. the cost of interest bearing liabilities had dropped to 11.9% in the first quarter of this fiscal year from 13.6% in FY14 on account of downward adjustment of risk premium, SKS said.

The company did not get the small finance bank licence, which could have otherwise helped it accept small deposits from borrowers.

The capital adequacy ratio of the company, a measure of financial strength, is at 27.2% against the stipulated 15% by the Reserve Bank. “This has also enhanced the credit quality of the company’s papers and help obtain competitive pricing," SKS said.

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