HYDERABAD: Microfinance Institutions Network (MFIN), a self regulatory body of MFIs, has decided to ask the Reserve Bank to fix the margin cap for individual loan to borrowers at 12 per cent, instead of 10 to 12 per cent.

MFIN CEO Alok Prasad said the body will soon be approaching the RBI with the request as the new cap will be challenging for the microfinance sector.

The interest rate cap on individual loans given by MFIs is fixed at 26 per cent.

In a circular issued by the RBI on August 3, the caps on margin were revised to 10 per cent for large MFIs (loans portfolios exceeding Rs 100 crores) and 12 per cent for less than Rs 100 crore.

The average interest paid on borrowings and charged by the MFI are to be calculated on average monthly balances of outstanding borrowings and loan portfolio, respectively, the RBI had said in the circular.

“What the industry is saying is that the earlier position of 12 per cent which was there before August 3 circular should be restored. The industry is asking to maintain the status quo ante,” Prasad told reporters here.

Replying to a query, he said post AP MFI Act, the Indian microfinance industry size shrunk to Rs 16,000 crore from Rs 26,000 crore in 2010.

“Outside Andhra, with cautious optimism, I would say the industry would grow at 25 to 30 per cent in the current financial year,” he said.

The situation is improving outside Andhra Pradesh and banks and equity participants are showing interest in the industry and funding has selectively started, he said.

On situation in Andhra Pradesh, Prasad said the logjam will only be cleared though dialogue which is yet to take place.

After witnessing a spate of suicides of borrowers allegedly due to coercive recovery practices by the MFI agents, the then AP government had come out with AP Microfinance Ordinance in October, 2010 and subsequently made that into an Act. The Act affected the activities of all MFIs leaving around Rs 7,000 bad debts in the market.

SOURCE: The Economic Times