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Fusion Microfinance lowers rate with greater efficiency, lower cost of funds – EconomicTimes

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By Atmadip Ray, ET Bureau
Jun 22, 2018, 10.35 PM IST
KOLKATA: Despite hardening of general interest rates, there’s some relief for a certain segment of micro loan borrowers by way of lower borrowing costs. A handful of microfinance institutions (MFIs) are reducing lending rates backed by improved efficiency and lower cost of funds.

Fusion Microfinance, India’s ninth-largest MFI by outstanding loans, has cut lending rates by up to 140 points from June. It now offers loans at 23% to existing borrowers compared with 24.4% earlier while the rate for new borrowers is 23.5% against 24.6% earlier. A basis point is one-hundredth of a percentage point.

“Although interest rates are firming up, we think we will be able to hold on this rate for some time,” Fusion Microfinance chief executive officer Devesh Sachdev told ET.

The Reserve Bank of India raised the benchmark rate by 25 basis points in June for the first time in four-and-a-half years, signaling a squeeze in monetary policy to fight inflation. However, several MFIs including Fusion have managed to bring down the cost of funds over the past three to four quarters with an improvement in credit quality and operational efficiency.

RBI has capped lending rates of NBFC-MFIs at 10% over their cost of funds or 2.75 times the average base rate of five large banks, whichever is less. So, the lower cost of funds translates into lower lending rates. NBCFs are non-banking finance companies.

Fusion’s decision was preceded by rate cuts by at least two micro lenders. Svatantra Microfin, promoted by Kumar Mangalam Birla’s daughter Ananya Birla, slashed rates by 350 basis points to 19.25%, making it the cheapest micro loan offered by NBFC-MFIs. Delhi-based Satin Creditcare, the second largest NBFC-MFI after Bharat Financial Inclusion Ltd (BFIL), lowered its lending rate by 125 bps to 21.75%.

Fusion’s Sachdev said his company is looking for a rating upgrade and if this happens, the cost of funds will come down further. Fusion’s average cost of funds is now around 13%. It has a BBB+ rating. Fusion’s loan portfolio was Rs 1,600 crore at the end of March, while that of Satin is more than Rs 5,000 crore. BFIL’s loan outstanding stood at Rs 12,600 crore.

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