The following components are factored in determining the interest rate and other charges chargeable to the customers:

Cost of borrowing

The prevailing cost of borrowing applicable for the company to achieve a complete matching of assets and liabilities. Most of the company’s borrowings happen to be floating rate while all its loans to clients are on fixed rates. The pricing factors in the risk associated with this.

Cost of operations

The cost of operations includes manpower cost, infrastructure cost and other administrative costs. Most of these costs are fixed costs and are committed on the basis of budgeted volume of operations. Since these costs come down with increasing volumes and efficiencies, the pricing factor the estimated cost over a reasonable period of time. As a philosophy the company will charge clients interest rate only as if it is already a large MFI and growing at a moderate level of 15% p.a. Thus, the cost of start up and cost of growth are borne by the shareholders.

Portfolio Risk

The portfolio risk is factored on the basis of the type and nature of loans that the company gives, the risk profile associated with this client segment, past experience and overall management’s assessment.

Profit Margin

The profit margin is fixed on the basis of the return expected by the shareholders and the risks involved. The profit margin should be reasonable to attract fresh capital to sustain growth and can be benchmarked with comparable companies. A reasonable level of gearing is required to be maintained while arriving at the shareholder return.

Most Nationalised Banks and private sector banks in the country have a steady state of RoE of around 20%. Hence the company has also targeted a RoE of about 20%. However it has set an internal cap on RoE at 25% which means that if the RoE is set to exceed 25%, the company would accordingly reprice its loans to its clients to keep the RoE within the internal cap

Prevailing market practices

The fees and other charges applicable will depend on the market practices and the cost of providing such services. 

The lending rate as well as the fees charged is reviewed periodically by the Asset & Liability Management Committee.

The Company intimates the borrower regarding the loan amount, annualized rate of interest, insurance premium, processing fees, tenor of the loan and repayment schedule including installment amount at the time of sanction/disbursement of the loan.