MFIs may charge high interest rates than banks
By Joseph Samson
Sep 21, 2010
Print    Email    RSS   

Banks are worried that they might not be able to control microfinance institutions from charging high interest rates to borrowers. They should thus come up with a mechanism that would enable to put a check on the lending process of MFIs.

Banks have been directed by the finance ministry that MFIs whom they lend money should not lend at rates more than 24% to the final borrowers.

As a measure in accordance to the directive, some banks have put a clause while lending to MFIs which reads that they can't lend to borrowers at exorbitant rates. They have however not put a ceiling on the maximum amount at which MFIs can lend to customers.

"We will have to take an undertaking from MFIs that they will not charge more than 24%. But the better way of doing it would be RBI asking MFIs to disclose it on their balance sheet about the loan given above 24%," pointed out Corporation Bank CMD RN Pradeep.

"How this can be translated in reality is not known. What happens if MFIs lend more than 24%?" asked a CMD of another bank on condition of anonymity. "Secondly, banks are not the only source of funds for MFIs. So, technically they can still continue to charge higher rates to the final borrowers," he added.

RIS Sidhu, chief general manager of Punjab National Bank said that the idea to put a cap of 24% as the maximum rate beyond which MFIs cannot lend is a very positive step. "One, it will make banks more conscious and active on the asset side of lending in rural India and secondly, as PSU banks become more active in rural space, competition will drive down rates," he said.


(Comments Posted : 0) Post Your Comments
Show All Comments
 Select a product:

 Select a product:

Tax Planning for Working Women in India
Make your home loan repayment easier
Are fixed home loan rates actually...
Banking Ombudsman: to the aid of the customer
Loan against Property: A shoulder to rest...

PINJORE: CaℒL Giℛℒs In PiNjOrE 09915787550...
PINJORE: CaℒL Giℛℒ In PiNjOrE 09915787550...
how to gate my home loan certificate

Canara Bank earned a profit of 60%. Feb 6, 2015
New Branch of Laxmi Vilas bank at Vijayawada Jan 30, 2015
Home loan EMIs expected to drop down Jan 21, 2015
Corporation Bank received MSME banking excellence award 2014 Jan 19, 2015
Home loan rates set to fall, after reduction in repo rate Jan 16, 2015
News Archive