March 24: After the banks and financial institutions (BFIs) increased interest rates due to liquidity crisis, it is now the turn of microfinance companies to fact liquidity crunch now.

Microfinance companies are dependent on banks for loans under the deprived sector lending. But as the banks themselves have been facing liquidity crunch of late, microfinance companies are facing difficulties to obtain loans, says chairman of Nepal Microfinance Bankers’ Association Prakash Raj Sharma.

“We have not been able to receive adequate loans due to the liquidity crisis faced by banks,” said Sharma, who is also the CEO of Laxmi Lagubitta Bittiya Sansthan.

“This has started impacting our loan investment,” added Sharma.

Nepal Rastra Bank (NRB) has set the limit of 15 percent interest rate that microfinance companies can  charge from customers. The microfinance companies are not in trouble after the banks increased the interest rates. They have to pay as much as 13 to 14 percent interest to the banks for acquiring loan at present.

“We have submitted a memorandum to the central bank mentioning that the ceiling on interest rate has caused us problems. We are hopeful that the problems will be addressed after the third quarterly review of the monetary policy,” said Sharma.

The interests on loans have increased after the commercial banks increased interests on deposit by 10 percent in the month of Falgun (mid- February to mid-March). Following the decision of the commercial banks to raise interest rates,  microfinance companies had also submitted a written request to the central bank in mid-February to increase their interest rates.

NRB spokesperson Dr Gunakar Bhatta said that the central bank is currently discussing the problems faced by microfinance companies due to the increase in interest rates.

“The central bank is conducting internal study regarding the issue raised by microfinance companies,” said Bhatta, adding, “If they are facing problems due to the increase in interest rates, their concerns will be addressed.”

The central bank had fixed the limit on interest rates charged by microfinance companies two years ago after receiving multiple complaints that such companies were charging excessive interest rates.

Following the complaints, the central bank had introduced a provision that did not allow microfinance companies from charging more than 18 percent interest to the customers. However, that limit was lowered to 15 percent last year.

The microfinance companies have cried foul stating that the decision to fix the limit on interest rate is unfair because they it is subject to change according to market demand. They have urged the central bank to bring a provision that allows them to fix the interest rate by adding premium to the base rate.

BFIs are obliged to lend 5 percent of the total credit flow to the deprived sector as per the provision of the central bank. Majority of loan under this heading goes to the microfinance companies and cooperatives.

Sixty nine microfinance companies that are currently operational have lend a total of Rs 330.68 billion to more than 3.1 million customers.