High Court issues interim order not to organise strikes in essential sector

The Patan High Court has prohibited any sort of protest activities inside banks. The Patan High Court today issued an interim order not to organise any type of strike in bank offices as the banking sector comes under the essential sector.
A single bench of judge Tek Narayan Kunwar issued the interim order not to organise any type of strike hampering daily activities of any offices. Earlier, Upendra Bahadur Karki – on the behalf of a microfinance institution ‘NADEP Laghubitta Bittiya Sanstha’ – had filed a writ petition against the employees' organisation NADEP Laghubittiya Sanstha, at the Supreme Court, which has has called both sides – the writ petitioner and trade unions – for discussion on January 1.
The order also reads that protest inside banks is against the Essential Service Operation Act 2014, which has kept banking sector as a sector that provides essential service to the public. “Banking sector comes under essential service provider,” the order reads, adding that no one should organise activities that directly affect operation of a bank and its service.

Nepse halts trading of 81 listed companies

Nepal Stock Exchange (Nepse) has halted share trading of 81 listed companies today as they have not yet paid the annual securities renewal fees.
According to the rule, the listed companies need to pay the yearly renewal fee to the stock exchange by October 17 every year for continuous trading of their secondary shares.
According to the Nepse – the front line regulator – share trading of those companies will be reopened only after they pay their renewal fees. “Of the 81 companies that have failed to pay the annual renewal fees, Nepse has said that a majority are microfinance companies.”
Some 19 microfinance companies, three companies from trading subgroup, two each from hotel and others sub-indices, 11 firms from manufacturing and processing sectors,  18 development banks, two firms from life insurance sub-index, 11 finance companies and 13 from hydropower subgroup are restricted from trading their shares, though the investors have been hit hard due to the negligence of the listed companies.
The listed banks have, however, paid their yearly renewal fees before the deadline, according to the Nepse that halted the share trading of the 81 companies.

Central bank broadens sources of loans in foreign currency

The central bank has broadened credit sources of microfinance companies.
Issuing a circular on Monday, the central bank has allowed them to take loans in foreign currency from pension funds, hedge funds and other authorised organisations abroad too to ease pressure on shrinking foreign currency reserves.
Earlier, they were permitted to borrow only from foreign banks.
According to the central bank, microfinance companies can borrow up to 25 per cent of their primary capital from foreign financial sectors. “Microfinance companies can lend the money only in specified sectors – including tourism, agriculture, micro enterprise, micro hydro and renewable energy, income generating activities and self-employment and poverty alleviation – that contribute to the country's foreign exchange earnings.
The central bank has revised the provision to bring more foreign currency and improve the liquidity position. The central bank has turned its focus on microfinance companies that operate with little capital and have limited access in the international arena at a time when even the commercial banks are also struggling to get foreign currency loans.
However, most microfinance companies are unlikely to obtain loans in foreign currency as only a few of these companies have a primary capital of more than Rs 1 billion, the amount of money they can bring into the country will also be small.
According to the central bank, the foreign currency reserve has shrunk to $9.50 billion as of mid-July, down from $10.08 billion in the same period of last fiscal year. Though, it’s not a huge fall, the drop in foreign currency reserve is yet another signal for the government to be serious on time.
The central bank has been encouraging commercial banks to get loans from foreign companies to ease the liquidity crunch too. Though, most of the banks are facing the loanable fund crunch, they have not expressed interest to obtain loans in foreign currency, also despite the introduction of a lenient policy last year.
As of now, only two banks have taken loans in foreign currency including NMB Bank – that has taken a Rs16 billion project loan, the largest so far, from the Netherlands Development Finance Company, a Dutch development bank and NIC Asia Bank that has started the process to obtain a loan from International Finance Corporation (IFC), a member of the World Bank Group.
Foreign institutions were reluctant to offer loans to Nepali banks due to the failure to enforce a hedging solution effectively. Under a revised provision, the central bank has increased the maximum interest rate microfinance companies can pay on loans obtained from foreign sources to 6 month Libor (London Interbank Offered Rate) plus 4 per cent.
“The interest rate on such foreign currency borrowing should not exceed 6 month Libor plus 4 per cent that includes all applicable fees,” Nepal Rastra Bank (NRB) directive reads. “Earlier, the maximum interest rate was fixed at 3 per cent.”
The central bank has also told microfinance institutions that their total capital mobilisation should not exceed 30 times their core (tier 1) capital.
Currently, there are 91 microfinance companies in operation in the country.

Nepal Infrastructure Bank invests in 32-MW hydel project

Nepal Infrastructure Bank (NIB) has started to make investments in projects with an aim to accelerate the development of infrastructure in the country.
The bank has invested in the 32-megawatt (MW) Karuwa-Seti hydropower project in Machhapuchhre Village Municipality of Kaski district. The project – worth Rs 5.8 billion – is being financed by a consortium of banks led by Nepal Infrastructure Bank.
The first project that the infrastructure bank is investing in will be co-led by Himalayan Bank and Sanima Bank, which will together be chipping in Rs 2.56 billion. The remaining cost of the project will be financed by the promoter of the project. “The consortium of banks will be investing a total of Rs 4.06 billion in the project with Nepal Infrastructure Bank providing Rs 1.5 billion,” according to a press note of Nepal Infrastructure Bank. “
Nepal Infrastructure Bank also has several projects in pipeline and will soon sign agreements to implement five mega projects, the Nepal Infrastructure Bank press note reads, adding that it will very soon sign investment pacts to construct a star rated hotel and another hydropower project.
Established with an aim to bridge the infrastructure financing gap by raising resources from domestic and international market including blended financing, Nepal Infrastructure Bank is the first private sector-led financial institution in the country solely focused on financing infrastructure development.
Nepal Infrastructure Bank received a national level infrastructure development bank operation licence from the central bank to conduct financial transactions on February 10. The bank was established with joint investment from the government along with various commercial banks, insurance firms, microfinance companies, private businesses and a group of entrepreneurs.
The Nepal Infrastructure Bank has authorised capital of Rs 40 billion, issued capital of Rs 20 billion and paid-up capital of Rs 12 billion, though other private banks have also increased their paid up capital more than the Nepal Infrastructure Bank.
The Nepal Infrastructure Bank – that includes 10 per cent government and 90 per cent private sector share – has been established with an objective to play a vital role in the infrastructure development of the nation, more specifically in the areas of construction and development of transportation, agriculture, energy, tourism, special economic zones, advanced urbanisation infrastructure and information technology along with other areas of infrastructure.

Central bank mulls forced merger of microfinance institutions

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.

National Conference for small farmers on Thursday

The Small Farmers Development Micro Finance is going to organise National Conference for small farmers-2075 in the capital from February 28 with an objective of attracting investment in agro sector.
The two-day conference – under the theme 'Prosperity of Small Scale Farmers: Transformation in Agriculture and Development of Entrepreneurship' – is going to be organised after four years.
"Some 1,200 people including national and international experts, innovators, planning experts, policy makers and students will participate in the conference," vice chair of the Conference main organising committee Khem Bahadur Pathak said, adding that the conference will help in different activities including poverty alleviation, food security, end of starvation, production development, creating employment and environment conservation. "A total of 28 working papers would be presented in the conference."
The Small Farmers Development Micro Finance Ltd said that the representatives of more than 1,000 small-scale farmers' groups across the nation are going to take part in the conference.

Focus on products that benefit poor: World Bank

As mobile banking and other technological innovations fuel the expansion of financial services in many developing countries, a new World Bank report said, urging policy makers to focus on products that benefit the poor, women and other vulnerable groups the most.
No-frills savings and automatic payment accounts, for example, offer a safe place for people to store and transfer money and help them maintain a relatively stable living standard. Evidence, however, is mixed on micro-credit and micro-insurance products.
"When well designed, efforts to foster financial inclusion can be an effective way to empower people," said World Bank Group president Jim Yong Kim.

"Whether you are a public sector financial regulator or a private sector bank, it is in your interest to get everyone access to financial services., he said, adding that it is good for the world and will help us end poverty.
The 2014 Global Financial Development Report: Financial Inclusion, is the most comprehensive report yet on the topic. It comes as policy makers are pushing to reach the world’s unbanked - 2.5 billion people who make up about half of the world’s adult population. More than 50 countries recently set targets to improve financial inclusion.
Last month, Kim announced a new initiative to provide universal financial access to all working-age adults by 2020 - with the help of technological innovations such as e-money accounts and e-mobile wallets.

IFC to help strengthen capital market, issue local currency bond

The International Finance Corporation (IFC) has promised to help strengthen capital market and issue local currency bond.

Reiterated its support for private sector development in Nepal, visiting vice president and treasurer of IFC Jingdong Hua, today, highlighted an important element of the agenda is to develop domestic capital markets. "It helps create access to long-term, local-currency finance for large infrastructure projects and for small and medium enterprises, the key drivers of jobs and growth,” he added.
“As Nepal continues on its path of stability and growth, IFC is committed to supporting private sector development and creating opportunities," Hua said during a meeting with finance minister Shankar Koirala. “Private sector development is key to supporting long-term growth and poverty reduction in Nepal," he added.

Hua is visiting Nepal for the first time as vice president and treasurer of IFC, a member of the World Bank Group.

He met various government representatives and discussed IFC’s support to the development of domestic capital markets. He also met business leaders with an aim to help boost investor confidence, explore ways to support small businesses and increase private sector investment in large-scale hydropower, transport, and other infrastructure projects in the country.

IFC supports local capital markets by issuing local currency bonds, often paving the way for other issuers. It also provides local currency finance to meet the needs of the private sector.

"IFC is keen to work in Nepal to help promote local capital markets and local currency finance, including a proposal to establish a local currency bond to help attract both local and foreign investment into the country," he said, adding that it could be a confidence booster and a positive signal to a market like Nepal that is serious about expanding its economy, despite the transition.

Together with International Bank for Reconstruction and Development, IFC is also keen to develop Nepal's hydropower potential to alleviate the crippling power shortage in the country.

In the past five years, IFC has committed $48 million to power, transport, financial market, microfinance, and trade finance projects in Nepal. It also provides advisory services to strengthen business regulations, increase access to finance, support development of smaller enterprises, and facilitate creation of public-private partnerships (PPP) in infrastructure.

IFC is the largest global development institution focused exclusively on the private sector. It helps developing countries achieve sustainable growth by financing investment, mobilising capital in international financial markets, and providing advisory services to businesses and governments.

In fiscal year 2012, IFC's investments reached an all-time high of more than $20 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges.

RMDC to float primary shares at premium

Rural Microfinance Development Centre (RMDC) is going to be the third company — after Chilime Hydro and Nepal Telecom — and the first financial institution to issue primary shares at a premium.
"RMDC has asked Securities Board of Nepal for the final approval to issue 1,560,000 units of primary shares at a face value of Rs 100, with a premium of Rs 80, making it a total of Rs 180 per unit," said chief executive of RMDC Shankar Man Shrestha.
RMDC, the wholesale lender for microfinance institutions, had sold 300,000 units of shares worth Rs 30 million face value at Rs 180 per unit to International Finance Corporation (IFC) — a private sector lending window of the World Bank Group — recently. "IFC paid Rs 54 million in total," he said, adding that Siddhartha Bank had also bought 140,000 unit shares at a premium at various rates of up to Rs 315 per unit. "Siddhartha Bank paid Rs 39.48 million in total."
The class 'D' financial institution, with a paid capital of Rs 364 million, had a net worth of Rs 1.15 billion by the end of the second quarter of the current fiscal year. The net worth is projected to increase to Rs 1.60 billion by the end of the current fiscal year.
RMDC — that has 117 microfinance institutions as its partner institutions across the country serving one-fourth of the total population — was initially promoted by Nepal Rastra Bank and 13 other commercial banks.
According to the current share holding, Standard Chartered Bank Nepal holds 14.33 per cent, Nabil Bank holds 13.93 per cent, Himalayan Bank 13 per cent, Nepal Investment Bank nine per cent and Nepal Bank holds eight per cent, after the entry of IFC that holds 8.2 per cent shares.
Nepal Rastra Bank's share has also come down to five per cent from the initial 25 per cent. After the public issue, their current share holding per cent will further reduce.
"RMDC posted a net profit of Rs 136.5 million in the last fiscal year 2011-12," said Shrestha, adding that a fiscal year back in 2010-11, it had posted Rs 124.8 million net profit, whereas in 2009-10, it had recorded a net profit of Rs 89.2 million.
After the public issue, RMDC will have a paid capital of Rs 520 million. It has appointed Ace Capital as its issue and sales manager for the primary issue.

Microfinance Institutions should focus on poor: Dr Khatiwada

Microfinance institutions (MFIs) should focus on uplifting the living standards of people below the poverty line, according to the central bank governor.

Inaugurating a seminar on 'Regulation and Supervision of Microfinance Institutions in SAARC Region' organised by Nepal Rastra Bank (NRB) here in the valley today, NRB governor Dr Yubaraj Khatiwada said that the regulator has directed microfinance institutions to support in uplifting the people who live below the poverty line.

"The central bank has stressed on easy loan and investment promotion in poverty reduction-oriented programmes," he said, adding that the government has also prioritised women empowerment, human development, capital mobilisation and expansion of financial services in rural areas. "A separate Act on microfinance institutions is also a must for their smooth operation."

"Microfinance institutions that target backward people in Bangladesh have been running different income-generating programmes in collaboration with non-government organisations," informed governor of Bangladesh Bank Atiur Rahman, on the occasion.

"Such programmes have been fruitful in reducing poverty," he added.

"Banks — either government or private or joint investment — in Bangladesh must lend 2.5 per cent of the total capital to agriculture," he said, stressing on the need to maintain a high level of institutional good governance.

Due to lack of good governance, most of the microfinance institutions in the South Asian region have witnessed mission drift.

Pakistan, Afghanistan, Maldives and Sri Lanka are taking part in the three-day SAARC Microfinance Seminar supported by SAARC Finance, a regional network of SAARC Central Bank governors and finance secretaries.

Set up in 1998 — as a permanent body — SAARC Finance aims at promoting regional cooperation among central banks and finance ministries in SAARC member countries through staff visits and regular exchange of information, considering and proposing harmonisation of banking legislations and practices within the region, and working towards a more efficient payment system mechanism within the SAARC region and strive for higher monetary and exchange cooperation.

The SAARC Finance was formally recognised — by the 11th SAARC summit held in Kathmandu, in 2002 — as a regional platform that meets twice a year, concurrently with the International Monetary Fund/World Bank annual and spring meetings. Its chair rotates along with the change of the SAARC chair.

Microcredit borrowers drop globally but poor families availing microfinance services in Nepal increase

Though a global report has claimed that clients of microcredit are declining, the number of domestic microcredit borrowers has increased.

In 2011, some 13 million fewer of the world’s poorest families received access to microcredit and other financial services than in 2010, according to a report 'Vulnerability: The State of the Microcredit Summit Campaign Report, 2013', released today by the Microcredit Summit Campaign.

Key markets like India and Bangladesh saw a drop in the number of poor families getting microcredit, pulling the global total down, said chief executive of Rural Microfinance Development Centre Shankar Man Shrestha, releasing the report here today.

The Bangladesh market has matured, whereas India had its own problems that have reduced the number of borrowers from microcredit institutions, he said, adding that Nepal has, however, been witnessing an increase in the number of microcredit borrowers.

In July 2010, the number of domestic poor families availing the services of microfinance institutions stood at 13,93,000, whereas the number has increased by 26 per cent to 17,60,000 in 2012, Shrestha added. "Of the total number of poor families receiving microcredit, some might be taking loans from various microfinance institutions overindebting themselves, which has become a key problem, besides mission drift of some of the microfinance institutions that have been overconcentrating in the Tarai districts to save cost of operation in recent years."

However, microfinance institutions have been instrumental in poverty reduction in the country, despite market distortation and mission drift of some institutions, he opined.

Loan supply has also increased by 46 per cent in the last three years. In July 2010, loan supply stood at Rs 16.65 billion, which increased to Rs 24.30 billion in 2012, according to figures.

The savings of poor families have also increased in the last three years by 70 per cent. "Microfinance institutions had deposits of Rs 11.61 billion in July 2012, which was Rs 6.82 billion in July 2010," said Shrestha, who opined that microfinance institutions must reach some 500,000 poor families — who are still out of the reach of microcredit — in the 19 hilly districts of the country.

Globally, the total number of clients was reported to have fallen from 205 million to 195 million and the sub-set of families living in extreme poverty, defined as less than $1.25-a-day, from 137 million to 124 million, according to the report.

"The landmark report shows us that clients need education for their children, healthcare for their family, decent housing, and regular, nutritious meals," said Prof Muhammad Yunus, adding that it should be the focus of our work at the upcoming summit to be held in Manila on October 9-11, and in the years ahead.

Domestic microfinance institutions are also on correction mode, Shrestha claimed, adding that the recent 'Revisiting Nepal Microfinance Vision 2015' has revised the target down to 2.5 million families from the earlier 3.5 million, which was a bit ambitious. "For quality service and professional growth of both institutions and clients without mission drift, microfinance institutions have promised to reach 2.5 million poor families by 2015," he said, adding that they also have to help poor families graduate from poor to non-poor with micro enterprises, apart from increasing the number of borrowers only.

 

Current hurdles for growth of microfinance in Nepal

* Mission drift from social business to commercial for lust of quick profit

* Unhealthy competition among rising number of microfinance institutions

* Over concentration in urban and semi urban areas

* Microfinance institutions distancing themselves from targeted clientèle

* Deviation from working culture of microcredit

* Microfinance institutions growing fast instead of qualitative growth

* Lack of monitoring of social performance indicators

* Rising unionism in recent days