Kathmandu, July 11

Nepal Rastra Bank (NRB) has withdrawn two per cent of the total loan portfolio direct lending provision for commercial banks to the deprived sector through Monetary Policy 2017-18, which has the microfinance institutions (MFIs) upbeat as they will be able to borrow more from the commercial banks to expand their loans in the next fiscal.

Outstanding credit of 54 MFIs in operation till this fiscal stands at Rs 110 billion, which is expected to rise to around Rs 165 billion next fiscal as annual credit growth to the deprived sector has been rising by 50 per cent since the last few years, according to Janardan Dev Pant, CEO of Nirdhan Utthan Bank.

“MFIs will be able to borrow around Rs 100 billion from commercial banks in the next fiscal as the class ‘A’ financial institutions have to lend five per cent of their total loan portfolio to the deprived sector and another Rs 50 billion will be mobilised through deposits of MFIs.”

Likewise, development banks and finance companies also have to lend 4.5 per cent and four per cent of their total loan portfolio to the deprived sector, respectively. Some of the national level development banks and finance companies also lend to deprived sector through MFIs.

The rapid credit expansion by MFIs to the deprived sector was hit by the fund crunch in this fiscal as the central bank introduced the policy that required commercial banks to lend two per cent of their loan portfolio to the deprived sector directly. However, due to lack of expertise and mechanism, commercial banks were not able to lend to the deprived sector directly.

“The central bank’s policy in this fiscal blocked credit of around Rs 30 billion to the deprived sector,” said Jalan Kumar Sharma, CEO of Sana Kisan Bikas Bank. “Credit demand in the rural sector has been growing exponentially as borrowers of MFIs have been expanding livestock farming, agriculture and micro and small enterprises.”

The central bank had introduced the direct lending provision through monetary policy of current fiscal. However, it had deferred the provision till the end of this fiscal through the half-yearly review of the monetary policy and finally withdrew it from next fiscal.

Sharma said that deprived sector credit has flowed to the productive sector, which has contributed in the country gradually becoming self-reliant on various agro products and livestock. “A large chunk of the deprived sector credit has been floated to the agriculture sector, especially to smallholder farmers,” said Sharma.

The monetary policy for next fiscal has fixed 10 per cent lending requirement for commercial banks in agriculture sector out of the 25 per cent of the total portfolio credit requirement to the productive sector. However, since the cost of operation for mobilising small loans is quite high, MFIs doubt whether commercial banks will be willing to mobilise the required credit amount.

“As a majority of the farmers are smallholder farmers in the country, if the central bank introduces a policy whereby commercial banks have to mobilise half of the 10 per cent requirement through MFIs, we can expand access to credit to around 90 per cent of the smallholder farmers,” said Pant of Nirdhan Utthan Bank. “Access to credit for farmers may bring exponential agriculture growth.”