87 pc of small borrowers unaware of interest rate: NCAER

New Delhi: As many as 87% of the borrowers of micro-finance institutions (MFIs) are unaware of interest rates charged to them by the lender and there is need to introduce greater transparency, said a study.

“MFI borrowers are the least aware; in fact, a vast majority of them (87%) did not know the interest rates payable,” said a report conducted by NCAER. In contrast, awareness of interest rates of other sources is quite well known.

A strong implication of this finding is the need to introduce greater transparency regarding interest charges of different loan sources, especially the MFIs, said the study titled ‘Assessing the Effectiveness of Small Borrowing in India’.

Releasing the study Rural Development Minister Jairam Ramesh said microfinance institutions are not solving the India’s poverty… but they do play important role in bring the set of people in into formal credit system. “Such institutions do provide variety of financial products at terms more acceptable to borrowers than the immediate alternative moneylenders,” he said.

The study covers five urban centres, Kolkata, Hyderabad, Jaipur, Chennai and Lucknow, and the surrounding semi-rural areas. The average loan size of MFIs varied from Rs 12,000 to Rs 20,000 across clusters.

The sample groups surveyed for the study indicated that 64% of individuals that borrow from moneylenders own bank accounts, leading to the conclusion that access to a savings account with a bank does not guarantee access to credit from the bank, it said.

Highlighting the growth of the sector, the study said that in 2009, there were about 27.5 million borrowers and 84 MFIs, with an estimated portfolio of $4 billion. The annual growth over last 5 years was 62% in terms of clients and 88% in terms of portfolios.

Over time, the character of MFIs has changed. Now MFIs structured as NBFCs instead of NGOs and the mode of finance has also changed from donor-led to bank-led, it said.

PTI