Hyderabad: Grameen Koota Financial Services Pvt Ltd, a micro-lender that mostly operates in villages, has decided to cut interest rates for the petty loans it offers to low-income borrowers by 2%. These loans would be for education, water and sanitation needs.

After the cut, the interest rates for the loans in these categories would be 20%. On the income-generation loans, the kind of loans offered to set up a livelihood generation business, the company charges 24%.

Last month, SKS Microfinance Ltd, too cut its interest rate for income generation by 1.25% and now charges 20.75%. The slash in interest rates comes as an obvious move after the repo rates were trimmed by 50 basis points by the Reserve Bank of India (RBI) towards the end of September.

“All companies have now started reducing the interest rates. Across small and big companies a minimum of 25 basis points cut is being done. It is possible because the industry has gained efficiencies and the cost of funds has gone down too.

The bigger MFIs also leverage on technology to lower their operational costs," said Ratna Viswanathan, chief executive, Microfinance Institutions Network, an industry body of MFIs that fall under the Non-Banking Finance companies category.

In the coming few months, MFIN expects the rates to hover around 20-22%.

Grameen Koota has disbursed around Rs600 crore towards education, water and sanitation needs in the last three years. “The reductions are consistent with the company’s decision to pass on the cost advantages accruing from reduction in the cost of borrowing, economies of scale and operational efficiency, to its borrowers," said Grameen Koota’s managing director and CEO Udaya Kumar on Thursday.