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MUDRA Provides Rs.540 Cr to Microfinance Lenders, Interest Rates Come Down

MUDRA, a government initiative to help microfinance small livelihoods across the country, has begun lending funds to microfinance institutions and SKS Microfinance Ltd on Wednesday said it has received a Rs.100 crore. SKS Microfinance, Aarohan and Grameen Koota have already announced cuts in their interest rates passing on benefits to their customers in the sector.

Known as MUDRA loan, these funds come at 10% annual interest rate, which is cheaper compared to funds they raise from the commercial banks. Since cost of borrowing is crucial for microfinance institutions which provide collateral-free loans to their small borrowers, eventually it helps to bring down the interest-bearing liabilities and interest rates charged by these MFIs.

While SKS is providing loans at the rate of 20.75 per cent in interest now, Aarohan and Grameen Koota have also brought down their interest rates within the threshold of 24 per cent or less. "We are already the lowest cost lender in the MFI segment, and will pass on this benefit to our microfinance borrowers,” said Dilli Raj, president of Hyderabad-based SKS Microfinance.

MUDRA (Micro Units Development and Refinance Agency Ltd.) has initiated low cost funds to MFIs since April 2015 after its inauguration by Prime Minister Narendra Modi and the beneficiaries include a host of MFIs including Ujjivan Microfinance Ltd, Equitas Holdings Ltd, Satin Creditcare Ltd, BSS Microfinance and Aarohan Financial Services Pvt Ltd.

BSS Microfinance has received Rs.215 crore so far to provide ‘Shishu’ loans of up to Rs.50.000 per borrower. Currently, India has 5.7 crore micro credit borrowers who use funds of Rs. 11 lakh crore and employ 12 crore Indians whereas the larger industries employ only 1.2 crore, according to the government figures.

While MFIs lending micro-loans to women borrowers get these funds at 0.25 percentage point lesser interest rate compared to other financial institutions, MUDRA is also contemplating to prepare a charter that would make these lenders follow while treating their customers.

“Mudra is also now going to come up with a charter that would include terms for companies to treat customers. This would be for voluntary adoption and from our end we would persuade companies to use it. Broadly it would guide the lending institution on terms with which they deal customers,” said S. Srinivasan, deputy managing director of MUDRA.

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