SKS willing to reduce rates by 2%

SKS Microfinance Ltd, India’s largest microfinance institution, says it can reduce lending rates from the present 26 per cent to 24 per cent but not more. Further cuts, it says, will take time and won’t be easy. If the state government, the Reserve Bank of India or the finance ministry advises to reduce interest rates, SKS will try to do so over a period of time. It indicated that economies of scale would come into play with a tighter vigil and smaller MFIs would find it difficult to comply.

SKS pointed out that they borrow from over 60 banks at about 8.5 per cent. The delivery costs for the company work out to another nine per cent. It sets aside one per cent for hardship cases, 1.5 per cent for loan-loss provisions and three per cent for corporate tax. Around four per cent margin was required to ensure that investors from whom funds had been raised continued to put money in the company to extend loans to more people.

The company is positive that the ordinance would not hit the company’s profitability as additional revenues from insurance and housing loan products would offset the potential losses from reduced interest rates.