Nepal: Microfinance Institutions Double in Five Years

Nov 2011
Kathmandu, Nepal, November, 27 2011 - People's access to finance increases‚ MFIs lack funds. The number of microfinance institutions has witnessed almost double growth in the last five years as the wholesale lending by banks provide easy source for funds. Despite the wholesale lending from banks and financial institutions, the microfinance institutions often suffer from lack of funds.

The number of micro finance development banks operating at present has reached 21, whereas in 2007, there were 12 micro finance development banks licensed by the central bank.

The growing number of microfinance institutions has been successful in increasing the outreach of deprived section of the population to the finance. In the fiscal year 2009-10, microfinance institutions have catered the credits to 670,000 households across 56 districts, with the portfolio of Rs 8.10 billion.

In the last fiscal year, the amount of loans disbursed has reached to about Rs 14 billion and the outreach of microfinance institutions have grown to 1.7 million households that are entertaining collateral free micro loans.

The central bank allows class ‘A’, ‘B’ and ‘C’ financial institutions to carry out deprived sector lending through microfinance institutions. The provision has aided both other kinds of financial institutions along with microfinance institutions.

“Microfinance institutions are getting easy access to funds for lending while commercial banks, development banks and finance companies can easily fulfill their deprived sector lending requirement due to this mechanism,” said spokesperson of the Nepal Rastra Bank (NRB) Bhashkar Mani Gyanwali.

Thanks to the provision the numbers of financial institutions that have failed to fulfill deprived sector lending requirement in last few years. In last fiscal year, total of five financial institutions were penalised for not fulfilling the deprived sector lending obligation.

In the fiscal year 2009-10, there were 52 financial institutions that were fined for not issuing loans to the deprived sector as prescribed by the central bank.

The deprived sector lending refers to small loans that are lent to poor and rural people for small projects with minimal collateral in order to promote formal banking even among the rural and poor areas.

Despite the wholesale lending from banks and financial institutions, the microfinance institutions often suffer from lack of funds. “The amount of funds available with us is not sufficient to cater to the demand for borrowing,” chief executive of Madhyapaschimanchal Gramin Bikas Bank Sanjeev Neupane, lamented, adding that the annual demand for micro credit is around Rs 200 million but they are only able to provide loans worth Rs 50 million due to fund constraints.

He suggested revising the obligatory deprived sector lending for banks to be as high as five per cent from current 3.5 per cent to ensure the maximum availability of funds for microfinance.

The growing numbers of microfinance institutions have increased access to finance of remote and deprived people but at the same time geographical concentration of these institutions have contributed in over-indebtedness of the borrower. “Lately some microcredit institutions have become profit centric thus to earn more profit overlapping of the borrowers have created distortion in the sector that needs to be dealt with,” pointed Neupane, suggesting the central bank to be more selective in giving license to microfinance institutions.

Source : The Himalayan

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