KATHMANDU: In a significant move to protect borrowers, Nepal Rastra Bank (NRB) has issued new regulations to curb exorbitant service charges and surcharges imposed by microfinance institutions (MFIs).
Issuing a circular on Sunday, NRB reduced the maximum service fee charged by MFIs from 1.5 percent to 1.3 percent. Furthermore, the central bank has prohibited these ‘D’ class financial institutions from levying any additional surcharges on their clients.
This intervention comes in response to numerous complaints from microfinance beneficiaries about excessive service charges and high interest rates. These hefty charges have led many individuals into substantial debt, impacting their financial stability.
The newly unveiled monetary policy for 2024/25 also aims to address these issues by revising the interest rate cap on MFI loans, which currently stands at up to 15 percent per annum.
Under the new NRB provision, households can now receive collateral-free loans up to Rs 25,000 with the guarantee of their family members. The limit for group-based loans for deprived communities and low-income individuals to operate micro-enterprises has been increased from Rs 500,000 to Rs 700,000.
Additionally, the central bank has permitted individuals to take loans from a maximum of two MFIs, applicable to both group guarantee and collateral-based credit.
The NRB has also directed MFIs to distinguish between willful and non-willful defaulters before blacklisting borrowers. Willful defaulters include those who avoid contact with MFIs for over a year after loan maturity, obstruct the auction of securities, misuse loan amounts, submit fake documents, or pressure MFIs to waive loan amounts.
This set of regulations aims to create a fairer lending environment, ensuring that microfinance services remain accessible and affordable for all, thereby supporting financial inclusion and economic growth in Nepal.