‘Interest cap on microfinance institutions against poor’

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Hyderabad, July 20: The proposed 12% interest cap for lending to the rural folk by microfinance institutions (MFIs) in the country will work against the poor, said Vikram Akula, CEO, SKS Microfinance here on Thursday. "Private MFIs cannot operate as they borrow from commercial banks. While the rate of borrowing is about 10% and the cost of financing is 10%, thus making it as high as 20%, the cap at 12% is bound to put MFIs out of business," he said.

Explaining further, Syed Hashemi, senior Microfinance specialist, The Consultative Group to Assist the Poor (CGAP) said that cap is not the way but competition to expand MFI business.

Hence CGAP, for which the World Bank is a member organisation, has decided to promote transparency and create a better functioning market.

Besides, in order to solve the rigidity, Hashemi said that transparency has to be emphasised among the market forces to mobilise more money as well.

Despite a hue and cry over high interest rates prevailing in rural India, he said it is still in the lower band when compared to Afghanistan, Pakistan, Bangladesh or other South Asian countries.

‘‘Transparency is much broader than financial reporting and is about corporate governance, effective management and full disclosure to clients," he quipped.

Moreover, MFIs are banking on technologies to lower their operating costs, he added. Meanwhile, SKS Microfinance has received merit recognition in the CGAP Financial Transparency Award Competition for its commitment to financial transparency.