MICROCAPITAL BRIEF: Fusion Microfinance of India Cuts Interest Rate from 24.6% to 23%

Fusion Microfinance Private Limited, an Indian non-banking financial company, recently reduced the interest rate it charges on microloans from 24.6 percent to 23 percent per year for pre-existing customers. The rate for first-time borrowers was also 24.6 percent but is now 23.5 percent. Until November 2016, it had charged a rate of 25.5 percent per year. Each loan incurs a 1-percent fee, and the cost of life insurance is passed through with no markup. Fusion Microfinance also offers emergency loans of up to INR 5,000 (USD 78) at an annualized rate of 22 percent.

Devesh Sachdev, the Founder and CEO of Fusion Microfinance, reportedly said that the microlender lowered its rates in order to expand its customer base. Mr Sachdev added that, “Fusion Microfinance being Reserve Bank of India (RBI) regulated, charges interest rates on reducing balance basis, which means a customer with a one-year loan of INR 12,000 (USD 175) pays around INR 1,400 (USD 20) as total interest. This is often overlooked as people assume the effective rate to be flat rate of interest.” Lenders that use a flat basis collect interest on the full amount borrowed even after the principal has been partially paid down.

Launched in 2010, Fusion Microfinance focuses on lending to women in rural areas of northern and central India. It offers loans of up to INR 50,000 (USD 780) with terms of up to two years. The institution does not accept deposits. As of 2018, Fusion Microfinance reports a gross loan portfolio of INR 16 billion (USD 241 million) outstanding to 1 million customers whom it serves via 389 branches in 16 Indian states.

By Nicholas Galimberti, Research Associate

Sources and Additional Resources

Knowledge & News Network India article
http://knnindia.co.in/news/newsdetails/sectors//fusion-microfinance-reduces-interest-rate-on-loan-disbursement

Fusion products
https://fusionmicrofinance.com/html/products.php

India Infoline article
https://www.indiainfoline.com/article/news-top-story/fusion-microfinance-reduces-interest-rate-to-24-5-116110900403_1.html

MicroCapital Brief; February 12, 2018; Fusion Microfinance of India Raises $12m in Equity from Creation Investments, Oikocredit, Gawa Capital
https://www.microcapital.org/microcapital-brief-fusion-microfinance-india-raises-12m-equity-creation-investments-oikocredit-gawa-capital/

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