Marking a new phase in the evolution of the microfinance market in India, Bandhan (an MFI headquartered in West Bengal) reduced its interest rate to an unprecedented 19%. This is one of the rare, if not only, instance of an MFI reducing interest rates voluntarily and without the spectre of political duress. We think this is a fantastic and highly overdue move – because it will focus competition finally on the dimension that really matters – price. We showed here that even with effective interest rates between 16 – 18% , ROEs of 20% plus are possible for investors.
(Note: Chandra Shekhar Ghosh is the Managing director of Bandhan.)