Kathmandu, March 15

Microfinance institutions (MFIs) have been urged to lower their operation cost by using innovative methods, applying technology and through utilisation of best practices so that the lending rate being charged by microfinance companies could be moderated.

Speaking in the inaugural session of the Fourth National Microfinance Summit Nepal, which kicked off in the Capital from today, Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara, hailed the initiatives taken by microfinance institutions to uplift the living standards of the rural people by providing them access to finance.

“Microfinance companies have contributed a lot to exploit the economic potential of rural Nepal,” stated Mahara. He, however, opined that MFIs now need to expand their scope of work and simultaneously provide entrepreneurial ideas and skills to the rural people. He also underlined the need of value chain financing so that lending space for microfinance could be expanded. “This will further reinforce the rural economy and ultimately help in poverty alleviation, which has been in priority since long.”

Minister Mahara also instructed Nepal Rastra Bank (NRB) to introduce necessary intervention policies to arrange funds for MFIs. MFIs have so far mobilised Rs 77.22 billion till last fiscal and the annual credit demand has been rising by 50 per cent since last three years, which means credit demand will hover around Rs 115.83

billion this year.

However, MFIs will be able to mobilise only Rs 77.76 billion — Rs 36 billion from their deposits and around Rs 41.76 billion from commercial banks — according to Nepal Micro Finance Bankers’ Association.

The shortfall in funds is due to the central bank’s provision of two per cent direct lending to deprived sector from commercial banks, which NRB has deferred till the end of next fiscal during mid-term review of monetary policy this year.

To fulfil the credit demand of the rural economy, NRB has provisioned that class ‘A’, class ‘B’ and class ‘C’ financial institutions have to lend five per cent, 4.5 per cent and four per cent of total loan portfolio to the deprived sector. Commercial banks were previously working through MFIs to mobilise the said loan amount to the deprived sector.

However, the monetary policy this year has asked commercial banks to lend two per cent directly to deprived sector, which means MFIs are able to mobilise only three per cent of the total loan portfolio of commercial banks.

Addressing the programme, NRB Governor Chiranjibi Nepal, said that the central bank has been providing fund without any interest to MFIs to provide credit in 22 remote districts, but a large chunk of the fund is still unutilised. He alleged that MFIs have become more sophisticated, urban-centric and profit-oriented.

“Many MFIs have deviated from the core objectives and values of rural financing,” said Governor Nepal, adding, “MFIs should cater the financial needs of low-income people and help them expand their businesses by providing required support. However, some seem to be exploiting low-income people.”

The summit will run for another two days and the organisers have said that they will discuss the problems faced by microfinances, ways to control malpractices, effectiveness of credit information bureau and issue a declaration at the end of summit.