At a recent event in Kathmandu entitled Revisiting Nepal Microfinance Vision 2015, government officials reportedly cited positive socioeconomic effects from microfinance while shedding light on the challenges faced by the industry. Chief Executive Shankar Man Shrestha of Rural Microfinance Development Center Limited (RMDC), a lender-owned organization providing wholesale loans to microfinance institutions (MFIs) in Nepal, reportedly said that MFIs have proven instrumental in improving the lives of their clients. Deputy Governor Gopal Prasad Kafle of Nepal Rastra Bank, the country’s central bank, was quoted as saying, “MFIs have undertaken half the job of the government in terms of social changes in rural areas by assisting in poverty alleviation, women empowerment, creating social awareness, and enhancing the state of not only financial literacy but also of general literacy”.
However, Mr. Kafle reportedly pointed to the issue of multiple lending as leading clients to be unable to repay their loans. Mr. Shrestha was quoted as saying, “Despite the huge contribution towards poverty alleviation, MFIs now are showing signs of mission-drift due to expectations of exponential profits. The practice of hiding bad loans and snatching clients or insisting on multiple lending will hurt them. Cut-throat competition and duplication are also emerging as challenges for the sector.” Mr. Kafle reportedly added that MFIs distribute dividends as high as 28 percent resulting in higher interests rates. Mr. Kafle was quoted as saying, “It is widely known that MFIs are charging high interest rates because their operation cost is higher, and if the government wants the poorest of the poor to get loans at lower interests, it should subsidise either the operating cost or the interest rate.”
RMDC’s chairman, Ashoke SJB Rana, reportedly suggested that MFIs should improve their corporate governance and managerial quality in order to increase efficiency.
By Lena Phillips, Research Associate
About Rural Microfinance Development Center Limited (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 support to microfinance institutions (MFIs). 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. RMDC was founded in 1998 as a public limited company. 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. 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 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: “Microfinance brings socio-economic changes”, http://www.thehimalayantimes.com/fullNews.php?headline=Microfinance+brings+socio-economic+changes&NewsID=358568
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: Rural Microfinance Development Center Limited (RMDC), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Rural+Microfinance+Development+Center+Ltd.+%28RMDC%29
MicroCapital Universe Profile: Nepal Rastra Bank, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Nepal+Rastra+Bank+%28NRB%29
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