The central bank is mulling to send microfinance institutions (MFIs) into forced merger to consolidate the number of class D financial institutions.
The wholesale borrowers lend the individuals without collateral for small enterprises. They can issue only up to 33 per cent of their investment portfolio by accepting collateral, according to the central bank. Likewise, the central bank has made the banks and financial institutions mandatory to lend 5 per cent of their total loan portfolio to the deprived sector but those which cannot lend directly due to lack of reach and capacity, lend the microfinance institutions to avoid the fine. Banks and financial institutions that fail to lend 5 per cent of their total loan portfolio to the deprived sector faces cash penalty, according to the central bank.
There are 91 microfinance companies currently operating in the country whereas some 18 are in line to receive licences. Though, he could not give any logic why the central bank wants to reduce the number of microfinance institutions, deputy governor of Nepal Rastra Bank (NRB) Chintamani Shiwakoti said that they have started to focus on the unification of microfinance companies. “The central bank has stopped issuing licences to the class D financial institutions – or popularly known as microfinance companies – in 2016 but only 11 companies have submitted letters of intent so far,” he said, adding that the central bank will issue a 30-day deadline to those that are in the process of receiving their permits. “There will be more than 100 microfinance institutions after all the companies that have received letters of intent start operation.”
He also attributed the size of market and sustainability of the microfinance companies for the forced merger. “As the market will be overcrowded with an excessive number of microfinance institutions soon, there will be unfair competition to survive, and reducing the number is the only remedy for the financial stability o,” Siwakoti added.
The central bank – to encourage mergers of microfinance companies – has also offered a number of incentives to potential partners through this year's monetary policy. The central bank has increased the maximum loan amount – like institutions can give from Rs 1 million to Rs 1.5 million – and the central bank will also extend the deadline for these institutions to maintain the minimum capital adequacy ratio (CAR).
Recently, the central bank has also capped microfinance lending at 20 per cent per annum including 2 per cent service charge. It has also ordered them to submit information about their borrowers to the Credit Information Bureau (CIB) to check possible multiple borrowing, which is one of the major challenges in the microfinance sector.
The wholesale borrowers lend the individuals without collateral for small enterprises. They can issue only up to 33 per cent of their investment portfolio by accepting collateral, according to the central bank. Likewise, the central bank has made the banks and financial institutions mandatory to lend 5 per cent of their total loan portfolio to the deprived sector but those which cannot lend directly due to lack of reach and capacity, lend the microfinance institutions to avoid the fine. Banks and financial institutions that fail to lend 5 per cent of their total loan portfolio to the deprived sector faces cash penalty, according to the central bank.
There are 91 microfinance companies currently operating in the country whereas some 18 are in line to receive licences. Though, he could not give any logic why the central bank wants to reduce the number of microfinance institutions, deputy governor of Nepal Rastra Bank (NRB) Chintamani Shiwakoti said that they have started to focus on the unification of microfinance companies. “The central bank has stopped issuing licences to the class D financial institutions – or popularly known as microfinance companies – in 2016 but only 11 companies have submitted letters of intent so far,” he said, adding that the central bank will issue a 30-day deadline to those that are in the process of receiving their permits. “There will be more than 100 microfinance institutions after all the companies that have received letters of intent start operation.”
He also attributed the size of market and sustainability of the microfinance companies for the forced merger. “As the market will be overcrowded with an excessive number of microfinance institutions soon, there will be unfair competition to survive, and reducing the number is the only remedy for the financial stability o,” Siwakoti added.
The central bank – to encourage mergers of microfinance companies – has also offered a number of incentives to potential partners through this year's monetary policy. The central bank has increased the maximum loan amount – like institutions can give from Rs 1 million to Rs 1.5 million – and the central bank will also extend the deadline for these institutions to maintain the minimum capital adequacy ratio (CAR).
Recently, the central bank has also capped microfinance lending at 20 per cent per annum including 2 per cent service charge. It has also ordered them to submit information about their borrowers to the Credit Information Bureau (CIB) to check possible multiple borrowing, which is one of the major challenges in the microfinance sector.
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