MFIs urged to expand to remote areas

Quick look

  • MFIs in operation — 41
  • Beneficiaries — 1.8 million households
  • Outstanding credit — Rs 60 billion
  • Recovery rate — Over 95 per cent

Kathmandu, May 15

Micro finance institutions (MFIs) have been urged to expand their services in core rural parts of the country to make financial services accessible to people in those regions where illiteracy and poverty levels are high.

Nepal Rastra Bank Governor Chiranjibi Nepal today alleged that MFIs are concentrated only in easily approachable places near district headquarters and have failed to serve the people of remote areas, where there is a real need of finance to support people embrace entrepreneurship.

Addressing the two-day Micro Finance Members Summit, which started in the Capital today, the governor highlighted that class ‘D’ financial institutions can play an enormous role to serve a larger proportion of the population that is still deprived of any type of financial services. It is reported that around 40 per cent of the total population is still deprived of access to finance, 20 per cent is reliant on informal source of financing, and only 40 per cent of the population has benefited from formal sources of financing like banks and financial institutions, and cooperatives.

Governor Nepal further said that along with expanding financial access to remote villages, the MFIs, who are designated to work in remote places, can play a critical role to increase financial literacy. This initiative can give necessary impetus for productive utilisation of remittance in rural places. Due to lack of financial literacy remittance sent by overseas migrant workers of rural villages is being spent on consumption.

“There is money in villages because there is a trend among villagers these days to go for foreign employment. Now, MFIs need to guide the rural people by showing them the opportunities available in their own places by providing ideas to embrace entrepreneurship,” he added.

There are altogether 41 MFIs in the country and penetration of MFIs is in all 75 districts of the country. Apart from that, the central bank has introduced a mandatory provision to convert financial intermediaries into MFIs and 19 financial intermediaries have already started the process to be MFIs as per the provision. The central bank has allowed MFIs to lend up to Rs 700,000 to a borrower against collateral, up to Rs 300,000 without collateral but on group guarantee, and Rs 100,000 without any guarantee for an individual borrower.

Governor Nepal also urged MFIs to bring down high operation costs in a bid to reduce their lending interest rates. MFIs, citing high operation costs, have been charging high interest rates, which are four to five times higher than the market rates, from their borrowers. MFIs have long been asked to reduce interest rates by the regulatory body. However, borrowers have yet to benefit from the central bank’s intervention.

Similarly, there is a problem of duplication in lending. There are examples of one client obtaining loans from various MFIs due to lack of credit information. Recently, the Credit Information Company Ltd has started the initiative to generate credit report of MFIs to discourage multiple lending.

The Summit, inaugurated by Prime Minister KP Sharma Oli, is being participated by over 700 people. Shankar Man Shrestha, chair of the organising committee, said that this summit has been organised to promote lending by MFIs to develop entrepreneurship. In this regard, MFIs need to tie up with reputed institutions to provide skill development training to their borrowers along with capital, according to him. “Skill and capital will support them to expand their existing business and they can rise from the subsistence level,” as per Shrestha. “As the country has aimed to end poverty by 2030, MFIs will play a crucial role to achieve this goal.”