SKS Microfinance today announced a 100 basis points or 1% reduction in the interest rate charged to borrowers from 20.75% to 19.75% with effect from Dec. 7, 2015, for all future disbursals.
This is the fourth interest rate reduction, aggregating 4.8%, announced by the company since October 2014.
The company said, 'The reductions are consistent with the company's policy of passing on the cost advantages accruing from reduction in the cost of borrowing and economies of scale to its borrowers.'
'With this, the company becomes the first micro finance institution to charge a sub-20% interest rate on its core income generating loans (IGL) which are unsecured micro loans,' it added.
Interest rate of 19.75% is the lowest rate charged by any private sector MFI in the world.
The company could reduce its marginal cost of borrowing to 11.3% in Q2-FY16 from 13.6% in FY14 on account of downward adjustments in risk premium. Marginal cost of borrowing for H2-FY16 is expected to be lower than 11.3% given the company has accessed refinance from MUDRA at 10% and issued commercial papers at 9.5% per annum in October and November 2015.
SKS's sustained turnaround, improved profitability in FY15, Q1-FY16 and Q2-FY16, capital raise in May 2014, rating upgrade as also issuance of commercial papers and non-convertible debentures are the factors that drove the reduction in its cost of borrowing.
Creditor confidence in SKS Microfinance has also been boosted by the company's spotless repayment track record. During the most difficult Andhra Pradesh microfinance situation, the company did not join Corporate Debt Restructuring (CDR) and met all its financial obligations - amounting to Rs 58 billion - to the banking system without any hair-cut or rescheduling.
Shares of the company gained Rs 22, or 5.19%, to trade at Rs 446.00. The total volume of shares traded was 271,938 at the BSE (10.59 a.m., Friday).