Nepali financial sector will be flooded with additional 33 more ‘D’
class banks within next two years. The monetary policy for fiscal year
2013-14 has announced that all non-government organisations that have
been licensed by Nepal Rastra Bank (NRB) for financial intermediation
has to become ‘D’ class financial institutions – that is microfinance
development bank – by the end of fiscal year 2014-15.
At present there are 33 financial NGOs (FINGO) operational in different areas of the country. These FINGOs have to get investment of Rs 10 million for capital to become NRB licensed financial institutions, as a basic requisite among others and be willing to be bound with financial regulations.
At present there are 32 class ‘D’ financial institutions operating in different parts of the country providing wholesale and retail micro credit. These microfinance institutions (MFIs) have provided micro-loans to more than 849,000 borrowers as of last fiscal year end.
“It is not easy for a FINGO that is operating under the laws that govern NGOs to become entity under regulatory framework of NRB,” said Bhagwati Chaudhary, chairman of Forward Community Microfinance Development Bank that used to be FINGO about two months ago.
In the recent years, limited banking licensed FINGOs have more than doubled as microfinance has flourished in Nepal.
However, MFIs have been able to provide services in 65 districts, failing to reach 10 districts entirely, and being concentrated over certain areas only.
“Though, capital might be easier to collect than to shift the whole structure of community organisation into banking one- from book-keeping, taxation to operation,” she added.
Moreover, to promote banking and monetary policy, central bank had announced that class ‘D’ banks will be licensed based on geographical location to encourage financial access.
“Instead of expecting Humla or Dolpa based MFIs, central should encourage existing one to reach out to these remote areas devoid of financial services,” pointed out Dr Harihar Dev Pant, CEO of Nirdhan Utthan Bank, a premier microfinance bank here.
Central bank has announced that it will provide interest free loans up to Rs two million for class D banks to start branches in designated ‘unbanked’ districts.
“NRB finances for up to six months only, but to come into break even a microfinance branch needs minimum of three years, so it could have been better if NRB can introduce provision for relatively longer term,” said Pant.
Moreover, central bank has decided to expand the limit on collateral-less micro loans floated to an individual to Rs 150,000. Based on the collateral, a microfinance group member is entitled to borrow up to Rs 400,000 which used to be Rs 300,000.
“Increasing loan ceiling is less important if you want to reach more deprived people in the rural areas, more than volume of loans we need to focus on increasing numbers of beneficiaries,” Pant added.
“Moreover, NRB failed to define whether individuals that are not affiliated with micro credit group should be eligible for collateral based micro loan up to Rs 400,000 –these are the ones that are in need of micro enterprise loans,” stressed Pant.
This time NRB has decided to penalise the MFIs that fail to lend to target group and instead park the fund borrowed from other financial institutions as deposits and make money from interest rate difference between borrowed rate and earned rate from deposits. MFIs have been mobilising funds lent by other financial institutions to fulfill their deprived sector lending obligation. So large number of MFIs is beneficial for the financial institutions.
src: THT
At present there are 33 financial NGOs (FINGO) operational in different areas of the country. These FINGOs have to get investment of Rs 10 million for capital to become NRB licensed financial institutions, as a basic requisite among others and be willing to be bound with financial regulations.
At present there are 32 class ‘D’ financial institutions operating in different parts of the country providing wholesale and retail micro credit. These microfinance institutions (MFIs) have provided micro-loans to more than 849,000 borrowers as of last fiscal year end.
“It is not easy for a FINGO that is operating under the laws that govern NGOs to become entity under regulatory framework of NRB,” said Bhagwati Chaudhary, chairman of Forward Community Microfinance Development Bank that used to be FINGO about two months ago.
In the recent years, limited banking licensed FINGOs have more than doubled as microfinance has flourished in Nepal.
However, MFIs have been able to provide services in 65 districts, failing to reach 10 districts entirely, and being concentrated over certain areas only.
“Though, capital might be easier to collect than to shift the whole structure of community organisation into banking one- from book-keeping, taxation to operation,” she added.
Moreover, to promote banking and monetary policy, central bank had announced that class ‘D’ banks will be licensed based on geographical location to encourage financial access.
“Instead of expecting Humla or Dolpa based MFIs, central should encourage existing one to reach out to these remote areas devoid of financial services,” pointed out Dr Harihar Dev Pant, CEO of Nirdhan Utthan Bank, a premier microfinance bank here.
Central bank has announced that it will provide interest free loans up to Rs two million for class D banks to start branches in designated ‘unbanked’ districts.
“NRB finances for up to six months only, but to come into break even a microfinance branch needs minimum of three years, so it could have been better if NRB can introduce provision for relatively longer term,” said Pant.
Moreover, central bank has decided to expand the limit on collateral-less micro loans floated to an individual to Rs 150,000. Based on the collateral, a microfinance group member is entitled to borrow up to Rs 400,000 which used to be Rs 300,000.
“Increasing loan ceiling is less important if you want to reach more deprived people in the rural areas, more than volume of loans we need to focus on increasing numbers of beneficiaries,” Pant added.
“Moreover, NRB failed to define whether individuals that are not affiliated with micro credit group should be eligible for collateral based micro loan up to Rs 400,000 –these are the ones that are in need of micro enterprise loans,” stressed Pant.
This time NRB has decided to penalise the MFIs that fail to lend to target group and instead park the fund borrowed from other financial institutions as deposits and make money from interest rate difference between borrowed rate and earned rate from deposits. MFIs have been mobilising funds lent by other financial institutions to fulfill their deprived sector lending obligation. So large number of MFIs is beneficial for the financial institutions.
src: THT
