Repo rate hike clouds outlook for microfinance lending costs

Jiji Mammen, CEO of the industry association Sa-Dhan, maintains that the hike will not trigger an immediate crisis. Speaking at the 21st Annual National Conference on Inclusive Growth, he noted that most microfinance institutions currently hold sufficient capital to absorb the change. He expects the transmission of higher borrowing costs to trickle down to micro and small enterprises only gradually, sparing them from abrupt shocks.

Contrasting this perspective, Subrat Sabyasachi Roy, Head of Strategy at Annapurna Finance, warns of a potential liquidity crunch. As banks tighten their lending standards in response to the rate increase, the cost of capital for microfinance players is likely to climb. Roy highlighted that while these institutions may need to adjust their pricing, regulatory constraints make the extent of any potential pass-through to borrowers difficult to predict. The ultimate impact on net interest margins remains an open question, with industry observers suggesting that the true scale of the pressure will only emerge as the market adjusts in the coming months.