Arohan Links Microfinance Interest Rates to Credit Risk and Repayment Behaviour

Manoj Nambiar, Managing Director, Arohan Financial Services, said the revised framework links microfinance loan pricing to borrower credit profiles and repayment behaviour, with rates ranging from 19.99 percent to 24.24 percent.

Arohan Financial Services has introduced a risk based pricing framework for its microfinance products, using its credit scoring model to determine borrower level pricing with immediate effect.
Under the revised structure, interest rates across Arohan’s microfinance products will range from 19.99 percent to 24.24 percent, depending on the borrower’s credit risk profile and repayment behaviour. The company said the move will allow customers with stronger repayment discipline and lower risk characteristics to access more favourable borrowing rates.

The Kolkata based NBFC microfinance institution, which is part of the Aavishkaar Group, said the revised schedule places some of its interest rates among the lowest in the NBFC MFI sector for customers with stronger credit quality. The company said the framework is intended to support fair and transparent lending while rewarding disciplined repayment behaviour.
Arohan said it follows a risk based lending approach that enables customers with a sound repayment history to benefit from lower rates. It added that the revised pricing structure is built on its existing credit scoring model and is designed to align loan pricing more closely with borrower level risk assessment.

Manoj Nambiar, Managing Director, Arohan Financial Services, said, “A disciplined approach to lending, combined with prudent risk management, has helped Arohan to maintain one of the lowest non performing asset ratios among NBFC MFIs. As a result, we are able to access diversified funding at competitive rates and pass on funding cost advantages to customers with stronger credit profiles, while extending credit to underserved communities.”
He added, “I am delighted to announce the special rate of 19.99% to our tried, tested and best rated repeat borrowers while continuing to expand access to affordable credit. Risk based pricing allows us to reward good repayment behavior, improve portfolio quality, and ensure long term sustainability, all while remaining committed to our mission of financial inclusion.”

The company said its board had earlier adopted a self imposed margin cap of 12 percent over its effective yield, describing the move as part of its focus on borrower protection and appropriate pricing.
Arohan also said the revised framework is aligned with the Reserve Bank of India’s March 2022 master direction on the regulatory framework for microfinance loans, which deregulated pricing in order to ensure that rates charged to borrowers remain fair, transparent, and competitive.

The company said it had first introduced a risk based pricing model in 2022 and 23. At that time, it implemented a board approved pricing policy for microfinance loans that outlined the different components used to determine rates, including cost of funds, operating expenses, credit risk premium, and margin, along with other applicable charges.
Arohan Financial Services said it will continue to work closely with customers to ensure clear communication and smooth implementation of the new pricing framework.

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