MICROCAPITAL BRIEF: Nepal’s Microfinance Institutions (MFIs) See 21% Growth in Profit During 2013-2014 Amidst Concerns over High Interest Rates Charged to Borrowers

Microfinance institutions (MFIs) in Nepal reportedly are experiencing a period of growth that some say can be attributed to high interest rates charged to borrowers.Microfinance development banks reportedly have earned 21 percent more in the third quarter of 2013 than in the same quarter of the previous year, earning INR 244.2 million (USD 4 million) by mid-April of 2013 compared to INR 191 million (USD 3.2 million) by the same time in 2012. Some people allegedly argue that the banks’ increased profits are a result of high interest rates paid by borrowers, which can reportedly reach 25 percent annually.

In the midst of the controversy, microfinance bankers allegedly are defending microfinance as being a business that expects a return on investment. According to a statement attributed to the Chairman of an unnamed microfinance bank, high interest rates are justified by “the cost of going to the field, organizing groups, providing focus groups with skill based training and then lending [people] money without any collateral” [1].

In order to ensure correct procedures of lending by MFIs, Nepal Rastra Bank (NRB), Nepal’s central bank and regulatory body for the country’s banking and financial sectors, reportedly will step in to monitor the interest rates being charged by microfinance institutions. A spokesperson for NRB, Bhaskar Mani Gyanwali, called the current rates of interest charged to borrowers by as “not sustainable” for both the borrowers and the lending institutions [1].

By Anesa Kratovac, Research Associate

About Nepal Rasta 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:

[1] The Himalayan Times website article, “Microfinance Institutions Flush with Profits,” http://www.thehimalayantimes.com/fullNews.php?headline=Microfinance+institutions+flush+with+profits&NewsID=379139

MicroCapital.org Article, February 28, 2013, “MICROCAPITAL BRIEF: Nepal Rastra Bank, Rural Microfinance Development Center, Center for Microfinance Nepal Urge Microlenders to Lower Interest Rates, Focus on “Deprived” Sectors,” https://www.microcapital.org/microcapital-brief-nepal-rastra-bank-rural-microfinance-development-center-center-for-microfinance-nepal-urge-microlenders-to-lower-interest-rates-focus-on-deprived-sectors/

MicroCapital.org Article, January 5, 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 Universe Profile: Nepal Rastra Bank (NRB), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Nepal+Rastra+Bank+%28NRB%29

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