Nepal Rastra Bank (NRB), the central bank of Nepal, has reportedly issued a circular mandating that financial institutions permit borrowers to repay loans at the original given interest rate in the event of an increase in the interest rate. Borrowers who do not wish to pay a higher rate must refrain from additional borrowing and begin to repay the loan. Under these conditions the borrower must not be charged other fees beyond the outstanding principal interest rate.
Another circular issued by NRB reportedly states that bank loans of up to INR 10 million (USD 180,000) to non-credit and savings cooperatives who in turn lend to groups involved in agriculture are to be considered as “deprived-sector” lending. Deprived-sector lending is defined as the provision of microcredit to low-income people in an effort to uplift their socio-economic status. NRB requires commercial banks to lend 3.5 percent of their total loans as deprived-sector lending. Development banks and finance companies must lend three and 2.5 percent of their total loans, respectively, as deprived-sector lending. If a financial institution is found to use these loans for other purposes, the institution will be required to pay 150 percent of the loan amount to cover possible loan loss. The circular also allows the purchase of microfinance institution (MFI) shares to be considered deprived-sector lending.
As of fiscal year 2011, NRB reported total assets of NPR 299 billion (USD 3.67 billion). The 41 Nepali MFIs that reported financial data to the US-based nonprofit Microfinance Information Exchange (MIX) disbursed a total of USD 89.1 million to approximately 397,000 borrowers in 2011.
By Charlotte Newman, Research Associate
About Nepal Rastra Bank (NRB)
Established in 1956, NRB is Nepal’s central bank. NRB formulates and monitors the nation’s monetary and fiscal policy and regulates the nation’s banking and financial sectors. For the year 2011, NRB reported total assets of NPR 299 billion (USD 3.67 billion).
Sources and Additional Resources:
The Himalayan Times: “NRB Introduces New Loan Payment Provision,” http://www.thehimalayantimes.com/fullNews.php?headline=NRB+introduces+new+loan+payment+provision+&NewsID=334709
MicroCapital.org story, April 5, 2012, “MICROCAPITAL BRIEF: Nepal Rastra Bank (NRB) to Increase Number of Bank Branches in Remote Areas,” https://www.microcapital.org/microcapital-brief-nepal-rastra-bank-nrb-to-increase-number-of-bank-branches-in-remote-areas/
MicroCapital.org story, November 1, 2011, “MICROCAPITAL BRIEF: Microfinance Institutions (MFIs) in Nepal Request Establishment of Credit Bureau,” https://www.microcapital.org/microcapital-brief-microfinance-institutions-mfis-in-nepal-request-establishment-of-credit-bureau/
MicroCapital Universe Profile: Nepal Rastra Bankhttp: http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Nepal+Rastra+Bank+%28NRB%29
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