Cheaper funding sources can help reduce microfinance interest rates

New Delhi: Amid sharp criticism over high interest rates, India's microfinance veterans have said that cheaper sources of funding can further bring down the rates charged by microfinance institutions, reports PTI.

“Interest rates are an issue that concerns the entire industry, which is subject to combination of issues like scale, cost of availability of funds and market forces,” Vijay Mahajan, president of the Microfinance Institutions Network (MFIN) that represents 44 leading microfinance lenders, told PTI.

Mr Mahajan, who is associated with rural economic development for nearly three decades and also heads the microfinance institution Basix, further added that the high cost of funds available to microfinance institutions (MFIs) was one of the major problems in the microfinance sector.
The loan book size of domestic MFIs, which cater to about 2.7 crore poor people, is about Rs33,000 crore. MFIs extend loans in rural areas, mainly unbanked areas.

"As MFIs, we have always stated that the growth of the base (of customers) will be critical to the reduction of costs. In addition, we can reduce costs if cheaper source of funds are made available to us," he said.

Sajeev Viswanathan, CEO of Bharatiya Samruddhi Finance, a microfinance firm promoted by Basix, said, “Yes, it is possible to reduce it (interest rates). One way to reduce it is by reducing the operating costs, and second way is banks reducing their interest (rates charged) from MFIs.”

Microfinance players raise funds through various sources including equity, term loans from banks/financial institutions, securitisation, rated securitisation, non-convertible debentures and commercial paper.

Out of the Rs33,000 crore loan book size, about Rs5,000-Rs6,000 crore comes from private equity, capital market while around Rs27,000 crore comes from banks, which is the only sustainable source of funding, Mr Viswanathan said.

In September, the finance ministry had asked state-owned banks to ask MFIs to cap their lending rates in the range of 20%-24% as a precondition to access bank finance.

Leading industry player SKS Microfinance recently said it would reduce interest rates across states to 24%.

Earlier this month, the top five microfinance companies including SKS Microfinance, Basix, Spandana, Share Microfin and Asmitha Microfin agreed to reduce interest rates they charge from borrowers to 24%.

"If all the stakeholders like the government, bankers, the regulator and key decision makers realise the importance of financial inclusion which can be achieved only by a robust micro finance industry we believe the microfinance industry has a very bright future," Mr Mahajan added.


Domestic car sales up by 38%, bikes 43% in Oct: SIAM

New Delhi: Domestic passenger car sales jumped by 37.99% to 1,82,992 units in October compared to 1,32,615 units in the same month last year, reports PTI.

According to the figures released by the Society of Indian Automobile Manufacturers (SIAM) today, motorcycle sales in the country during the month grew by 43.31% to 8,76,810 units from 6,11,828 units in the same month last year.

Total two-wheeler sales in October increased by 50.38% to 11,27,827 units from 7,49,965 units in October 2009.

Sales of commercial vehicles jumped by 18.17% to 50,835 units from 43,018 units in the year-ago period, SIAM said.

Total sales of vehicles across categories registered a growth of 45.93% to 14,60,655 units in October as against 10,00,953 units in the same month last year, it added.


Bharti Airtel Q2 net drops by 26.53% to Rs1,661.2 crore

New Delhi: With stiff competition at home and the increased tax rate in its newly acquired entity in Africa, leading private telecom operator Bharti Airtel today reported a 26.53% dip in its net profit for the second quarter ending 30th September, at Rs1,661.2 crore, reports PTI.

Bharti's results included its new African operations that it acquired in June from Kuwaiti telecom group Zain for $9 billion to become the world's fifth-biggest mobile operator.

Its net profit fell to Rs1,661.2 crore under the international accounting standards for the second quarter ended 30th September, from Rs2,263 crore in the same period a year earlier.

The effective tax rate in the second quarter increased to 25.5% from 10.6% in the corresponding period last year and 18.1% in the previous June quarter, mainly as a result of taxes in its Africa-based operations.

This led to the fall in the second quarter net profit.

Despite the dip in profit, company's total revenue rose by 46.6% to Rs1,52,15 crore from Rs1,03,78 crore in the same period last year, boosted by revenue from its acquisition in Africa. Bharti’s last year figures did not include numbers from its Africa operations.

Revenues from operations in Africa stood at Rs3,891 crore from Rs958 crore in April-June quarter. In the June quarter, only 23 days of African operations effective from 8th June were taken into account.

The monthly average revenue per user (ARPU) — a key indicator of profitability — dropped by 6% to Rs202 from Rs215 in the last quarter, despite a stable pricing environment. The Indian market where the tariffs are as low as 50 paise per second saw no significant price falls in July-September quarter.

Bharti's EBITDA (earnings before interest, taxes, depreciation and amortisation) margin, a key gauge of profitability, fell to 33.7% in July-September quarter from 41.4% in the year-ago period.

The company is betting on growth in Africa, where the mobile penetration level is less than India's 54% and there are fewer competitors.

Some analysts say the worst may be over for pricing in the Indian telecom sector. Minutes of usage declined by 6% to 454 minutes from 480 minutes in June quarter.

Bharti, with about 143 million users in India enjoys over 20% of the market. It is also present in Bangladesh and Sri Lanka.


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