July 5: Nepal Rastra Bank (NRB) has taken action against half a dozen microfinance finance companies that were found operating against the law.

The Microfinance Supervision Department of NRB took immediate action and fined the companies found breaching the law during a recent monitoring and inspection.

According to the NRB, three microfinance companies which did not maintain the required cash reserves and three that did not maintain the primary capital fixed as per the provisions of last fiscal year were booked by the department. NRB adopted swift action saying that the Samaj Microfinance, Win Microfinance and Ghodighoda Microfinance failed to maintain the minimum capital. As per the NRB directive, a minimum of 4 percent primary capital and 8 percent capital fund should be maintained by the microfinance companies.

Similarly, NRB also imposed fines on three microfinance companies for not maintaining the required cash reserves. NRB said that Gramin Microfinance was fined Rs 54, Sarathi Microfinance Rs 362 and Arambha Chautari microfinance Rs 2,888 for not maintaining the required cash reserve. NRB has been imposing fines on the basis of insufficient cash reserves.

According to NRB’s report, the bad loans of 11 microfinance companies were more than 5 percent in the last fiscal year and the interest rate of 10 microfinance institutions was more than the limit of 15 percent.

Recently, the number of microfinance companies is declining due to mergers. As of mid-July 2018, there were 65 microfinance companies in operation. By mid-July 2019, the number of microfinance companies licensed by the NRB increased to 90.

However, due to the merger and acquisition policy, 11 institutions went for merger and acquisition in the fiscal year 2076/77 BS and 5 more new institutions were approved for integrated transactions, making the total number of microfinance companies 84. In the Fiscal Year 2077/78, 15 companies opted for merger and acquisition and one new company started operation from July 2077 to mid-July 2078, making the total number of microfinance companies 70.

By April 2078, this number dropped to 65. At present, 4 wholesale and 61 retail lending microfinance companies are in operation. These organizations have formed 1.329 million groups and are providing financial services to 57.72 million people.

Loans and borrowings of microfinance institutions increased by 23.53 percent as compared to mid-July of 2078 and reached Rs 392.05 billion in mid-April 2079.