Some MFIs charging over 60% interest rate: AP govt

The Andhra Pradesh government's move to review Micro-finance 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%.

The Andhra Pradesh government is going all out to solve the microfinance mess and says that the compiling of credit histories of self help groups is almost done.

R Subramanyam, Principal Secretary of rural development at Andhra Pradesh said that until last night some Rs 5000 crores of loans have been filed before the registration authority. "We are going to set up a separate cell in order to combine these data bases and a credit  bureau with complete details in MFI lending. MFIs can start using these data bases very soon."

However, SKS CFO S Dilli Raj said that it has actually reduced its interest rate by 7% from 31.08% to 24.55%.

"All inclusive cost was 31.08%. We recently reduced & decided to drop the 2 components of 1% of fund interest & the credit yield insurance. So the effective interest rate all inclusive in AP as of date for all new loans is 24.55%," Raj added.

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.