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CMA Final · Strategic Financial Management · Digital Finance

A fintech lender in Pune disburses Rs 50,000 digital loans for 3 months. It charges a processing fee of 2% upfront (deducted from the disbursement) and interest of 1.5% per month on Rs 50,000, payable at the end of month 3 along with the principal. Ignoring compounding, what is the effective cost for the 3 months as a percentage of the net amount received by the borrower?

The effective cost is 6.63% for three months. The borrower receives Rs 49,000 after the Rs 1,000 fee, and the total cost is the Rs 1,000 fee plus Rs 2,250 interest, Rs 3,250 in all. Dividing by the net amount of Rs 49,000 gives 6.63%.

  1. A6.50%
  2. B6.63%
  3. C6.89%Correct
  4. D4.50%

Explanation

Net received = 50,000 - 1,000 = 49,000. Interest = 50,000 x 1.5% x 3 = 2,250. Total cost = 1,000 + 2,250 = 3,250. Cost on net = 2,250/49,000 for interest only is 4.59%, but the full cost of 3,250 as a ratio of the net amount is 6.63%. Hmm: 3,250/49,000 = 6.63%. Recomputed: 3,250/49,000 = 0.06633. Therefore the key is the 6.63% option.

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