Do not have any product with 60% interest rate: Basix

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

The Andhra Pradesh government's move to review Microfinance institutions (MFIs) has unearthed a can of worms. MFIs have been asked to file the details of the interest rates being charged by them and the data revealed the some MFIs charge reates as high as 60%.

The average rate being charged is at around 30%. Basix, for instance, has declared peak rates of 60.5% while SKS which claimed to the BSE and in public advertisements that it charged 26% and would bring it down to 24% has a filed documents saying it actually charged around 31%.

In an interview to CNBC-TV18, Sajeev Viswanathan, CEO, Basix clarified that they do not have interest rate of over 24% and they do not have any product with 60% interest rate. According to Viswanathan they have reduced interest rates by 4% in April.

"We hope the AP government will work with company to find the error," Viswanathan added.

Here is the verbatim transcript of his comments. Also watch the accompanying videos.

Q: We are sort of startled by the data that seems to be coming out from the AP government; your interest rates are as high as 60% for Basix?

A: That is a complete misinformation. Basix does not have single product which has interest rates of over 24%. In fact, Basix has been in the business of microfinance for over 10 years and we have never had an interest rate over 24% including the loan processing fee the maximum interest rate is at 27 or 28%. So we are also surprised at the information that is floated around.

Massive data conversion exercise had to be carried out to convert through 0.3 million records in matter of 24 hours to get it across to meet the deadline that were imposed upon us for registration and if it is at all possible that some corruption of data happened. I would expect that responsible authorities would check with us before putting out anything in the domain like this, testing the integrity of an organization like Basix which has been in the business of financial inclusion for several years.

Q: Just to understand this correctly, could you take us through how this process really works, what we understand is that MFIs like yourself have actually given the data to the Andhra Pradesh government so where doest the discrepancy arise because if you are claiming that your highest interest rate is about 26%, your average interest rate is 24% then where does this figure of 60% come from?

A: We are investigating the reports as they come. It is possible that the data conversion process which involves actually picking 2 billion nationwide records as these records are not stored by state. We have to do the search across the national data base. In the conversion process if there is any error at all which crept in and we have had to submit two forms. Data 1 was initially a request that we submit reams of paper hard copies, if there is a printing error or if there was an error in the coding programme which did the conversion. So, we are investigating that internally and trying to check what the issue is if there is any.

But I would like to state that there is absolutely no product in Basix no loan product which has an interest rate of more than 24% and a loan processing fee of about 3%.

We are in the business of livelihood promotion, we are the only institution today which has most of its payments on a monthly basis, and we do not have a weekly collection model. 25% of our products are crop loans where the repayment is collected only after the crops are sold and the farmers had a chance to get the cash realisation out which happens twice in 18 months, so we have products where repayments are made only once or twice a year. That is the kind of product we have. So I believe we have to investigate this. We are expecting that the authorities responsible would work with us to figure out where the error is if there is any and make appropriate amends.

Q: If you just take this data discrepancy aspect out of this conversation, the Principal Secretary has gone on record to say this. Is there a case of anytime in the past that this kind of interest rates could have been charged and the Secretary has also gone on record to say that this information is going to be published in all villages. So are you communicating with the government to explain this position saying that perhaps this is wrong?

A: To answer your first question, absolutely no point of time in the history of Basix has there been any charge in the order of what is being described and in fact as early as April this year we even reduced our cash security component which resulted in a 4% decrease in the effective interest rate to our customer. This was much before any of the other MFIs or the industry talked about interest rate reduction.

We have a policy on pricing within Basix which necessitates that every gain that we get on economies of scale is shared with the client directly. So over a period of several years, it has been our policy to keep interest rates at an affordable level for our clients.

On the second count whether the government has been sharing information with us, we have been in talks with the principal secretary, whom I have personally met twice in the last two weeks. Our dialogue has been very cordial and we have been working together to find if solution to the larger issue of over indebtedness, working with AP government and we have not heard from anybody about this specific instance until now. What we are learning is from the reports in the media.

So we expect that the responsible authorities if they do find such a discrepancy will take into account the integrity of Basix, an organisation which has been the founding institution in India for livelihood promotion and discuss this with us to actually examine what the real issue is before concluding that there is such an error.

Also watch the accompanying video.