Representatives of the Nepal Rastra Bank (NRB), the country’s central bank; the Rural Microfinance Development Center (RMDC), an organization owned by Nepalese lenders that provides wholesale loans to microfinance institutions (MFIs); and the Center for Microfinance (CMF) Nepal, a nonprofit network dedicated to promoting the country’s microfinance industry, reportedly have urged MFIs to lower microloan interest rates, claiming that a desire for greater profits is hindering financial inclusion.
NRB Governor Yuba Raj Khatiwada was quoted as saying, “The current interest rate structure has to be reconsidered as microfinance institutions are charging higher rates to earn greater profits. Microfinance programmes are important for promoting banking access but increasing unhealthy competition among [MFIs] has hurt beneficiaries.” Mr. Khatiwada went on to say, “Some institutions need to focus on lending to innovative sectors such as renewable energy, bio-gas and organic farming.”
According to RMDC CEO Shankar Man Shrestha, “Though infrastructure and knowledge regarding microfinance has been built, effectiveness has declined. […] Microfinance is moving away from the target population […] which is not good for the sector.”
Harihar Dev Pant, vice chairperson of CMF, reportedly noted that although many Nepalese residents have benefitted from the MFI industry, microfinance services, “… still are yet to reach remote and deprived sectors.” He added, “The agriculture sector requires commercialisation and entrepreneurship among farmers needs to be enhanced along with financial literacy. The limit of [NPR 60,000 (USD 680)] for collateral-free loan[s] set by NRB needs to be expanded so that [MFIs] can provide loans for setting up microenterprises.”
As of 2011, the 47 microfinance institutions in Nepal reporting financial data to the US-based nonprofit Microfinance Information Exchange (MIX) held loan portfolios totaling USD 201 million, served approximately 807,000 active borrowers and held deposits of USD 86.5 million from 1.4 million depositors.
By Lena Phillips, Research Associate
About The Center for Microfinance Nepal (CMF Nepal)
Established in 2000, CMF Nepal is a nonprofit network with a mandate to strengthen the capacity of Nepal’s microfinance institutions (MFIs). In an effort to assist MFIs in providing sustainable financial access to the country’s poorest residents, CMF Nepal works with MFIs, its members, and national and international practitioners in the areas of: capacity building, research, policy advocacy, support services and knowledge management. As of 2012, CMF Nepal’s governance structure was comprised of 25 individual shareholders, nine institutional shareholders and 27 associative members. Its office is located in Kathmandu.
About The Rural Microfinance Development Center (RMDC)
Located in Nepal, the Rural Microfinance Development Center Limited (RMDC) is a wholesale lender to microfinance institutions (MFIs) and institutions that support MFIs. In addition, RMDC imparts training and other support to MFIs. RMDC was founded in 1998 as a public limited company. Its promoters and shareholders include 13 commercial banks; five regional rural development banks; the Deposit Insurance and Credit Guarantee Corporation of Nepal; Nirdhan Utthan Bank Limited, a microfinance bank; and the Nepal Rastra Bank (NRB), the Nepalese central bank. As of July 16, 2011, RMDC reported NPR 2.24 billion (USD 25.3 million) in outstanding loans spanning 95 partner organizations. RMDC reported return on assets (ROA) of 4 percent as of the same year. RMDC has set a goal of reaching over 1.5 million families in 75 districts with microfinance services through 150 partner organizations by the end of 2015.
About The 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:
TheHimalayanTimes.com Article, “Governor asks microfinance firms to revise rates,” http://www.thehimalayantimes.com/fullNews.php?headline=Governor+asks++microfinance+firms+to+revise+rate+&NewsID=365961
MicroCapital.org Article, 20 February 2013: “MICROCAPITAL BRIEF: Governor Yuba Raj Khatiwada of Nepal Rastra Bank Cites Multiple Lending and Low Outreach to Poor People by Microfinance Sector,” https://www.microcapital.org/microcapital-brief-governor-yuba-raj-khatiwada-of-nepal-rastra-bank-governor-cites-multiple-lending-and-low-outreach-to-poor-people-by-microfinance-sector/
MicroCapital.org Article, 5 January 2013: “MICROCAPITAL BRIEF: Representatives of Nepal’s Rural Microfinance Development Center (RMDC), Nepal Rastra Bank (NRB) Express Cautious Optimism About Microfinance Reducing Poverty While Conceding There Are High Interest Rates, Mission Drift,” https://www.microcapital.org/microcapital-brief-representatives-of-nepals-rural-microfinance-development-center-rmdc-nepal-rastra-bank-nrb-express-cautious-optimism-about-microfinance-reducing-poverty-while-concedi/
MicroCapital.org Article, 5 November 2012: “MICROFINANCE EVENT: Centre for Microfinance Holds Third Microfinance Summit, Kathmandu, Nepal, February 14 – February 16, 2013,” https://www.microcapital.org/microcapital-event-centre-for-microfinance-holds-third-microfinance-summit-kathmandu-nepal-february-14-february-16-2013/
MicroCapital.org Article, 18 June 2012: “MICROCAPITAL BRIEF: Nepal Rastra Bank (NRB) Limits Microloan Interest Rate Changes, Adjusts Provisions for “Deprived-Sector” Lending,” https://www.microcapital.org/microcapital-brief-nepal-rastra-bank-nrb-limits-microloan-interest-rate-changes-adjusts-provisions-for-deprived-sector-lending/
MicroCapital.org Article, 15 June 2011: “MICROCAPITAL BRIEF: Rural Microfinance Development Centre (RMDC) Offers Seed Funding to Expand Microcredit into Remote Regions of Nepal,” https://www.microcapital.org/microcapital-brief-rural-microfinance-development-centre-rmdc-offers-seed-funding-to-expand-microcredit-into-remote-regions-of-nepal/
MicroCapital Universe Profile: Centre for Microfinance Nepal (CMF), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Centre+for+Microfinance+Nepal+%28CMF%29
MicroCapital Universe Profile: Rural Microfinance Development Center (RMDC), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Rural+Microfinance+Development+Center+Ltd.+%28RMDC%29
MicroCapital Universe Profile: Nepal Rastra Bank, http://microcapital.org/microfinanceuniverse/tiki-index.php?page=Nepal+Rastra+Bank+%28NRB%29
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