NRB makes stricter rules for microfinance loans

KATHMANDU: Nepal Rastra Bank (NRB) has tightened the lending of loans from microfinance companies. Now borrowers who have taken loans from any bank will not get loans from microfinance companies. In addition, NRB has made such arrangements that no one can take loans from more than one microfinance company.

NRB has implemented such a system by amending the ‘Unified Directives Microfinance Financial Institutions, 2078’ to micro finance institution of class ‘D’.

While providing microloans without collateral or under the security of collateral, only one financial institution shall disburse to one borrower without exceeding the credit limit as per this provision. Borrowers who have taken loans from commercial banks, development banks and finance companies will not be eligible to take loans from microfinance financial institutions, according to the instructions of NRB.

While taking a loan from a microfinance company, the borrower will now have to self-declare that s/he has not taken a loan from other banks and financial institutions. Also, on the basis of the loan information, it should be confirmed whether or not the loan has been taken from other banks and financial institutions. But in the case of loans that have already been disbursed, NRB has stated that the loan must be repaid according to the previous installment payment schedule.

A new arrangement regarding interest rates on deposits and savings of microfinance companies has been implemented. “The minimum interest rate of deposit savings should be fixed at least 50 percent of the maximum interest rate of loans provided by microfinance institutions,” according to the instructions of NRB.

Various funding arrangements of microfinance companies have also been amended through the guidelines. A microfinance institution that proposes an annual dividend distribution of more than 15 percent must deposit 50 percent of the proposed dividend in the general reserve fund. Earlier, in the distribution of more than 20 percent dividend, there was a provision to keep 50 percent of such dividend in the reserve fund.

Similarly, the provisions relating to the Client Protection Fund have also been amended. Previously, there was a rule that microfinance companies that propose annual dividend distributions of more than 20 percent should keep 25 percent of the proposed dividend in the customer protection fund. By amending it, a provision has been introduced that organizations distributing dividends of more than 15 percent annually must keep 35 percent of the proposed dividend above that in the bank customer protection fund.

Social responsibility regulations of microfinance companies have also been amended. Earlier, microfinance companies had to deposit at least one percent of their net profit in the social responsibility fund. Amending it, the NRB has said that the company proposing to distribute dividends more than 15 percent annually should set aside an amount equal to 10 percent of the proposed dividend above 15 percent for corporate social responsibility.