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MBSC’s directive on interest rates on micro-credits and savings

MBSC’s directive on interest rates on micro-credits and savings

June 24, 2019

On 5 June 2019, the Microfinance Business Supervisory Committee issued Directive 1/2019 (the “Directive”) which revises the interest rates applicable to micro-credits and savings of the members.

New rates of interest

The Directive introduces an interest rate of 28% on micro-credit (the “New Rate”) and provides illustrations with regard to calculating the effective rate of interest on such micro-credit. This New Rate is two (2) percent lower than the prior rate of 30% which had been introduced pursuant to Directive 1/2011. The Directive also states that the interest rate on compulsory and voluntary savings shall not be less than 14% p.a. (lowered from 15% as prescribed under Directive 4/2016) and 10% p.a. respectively.

Other fees as a percentage of total micro-credit

In terms of cost of funds, the Directive provides that the MFIs can charge fees (such as fees for loan service cost, bank service, member and documentation fee etc.) only up to 2% of the total micro-credit amount for micro-credits with a tenor of 12 months or more.

Effective date

The Directive takes effect from 1 June 2019.

Overrules prior directives

The Directive overrules the relevant sections of Directives 1/2011, 2/2014 and 4/2016 that refer to interest rates on micro-credits and savings of members of MFI.

AUTHOR

Surath is an India qualified lawyer working as a legal advisor in the firm’s Banking and Finance team. He advises international financial institutions, commercial banks and corporate borrowers in projects and inclusive finance transactions.


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