Yadav Humagain

August 26: Have you ever wondered how much interest would you get by depositing cash in banks and financial institutions at present? Commercial banks are providing interest on deposits in double digit (as high as 11.3 percent). Development banks, finance companies and cooperatives give even higher interest than commercial banks.

At a time when banks and financial institutions are competing with each other to increase interest rate to attract deposits, microfinance companies are found to have collected deposits by giving just one percent interest. The same microfinance companies are disbursing loans to the customers at 15 percent interest.

As per the data of mid-April 2022 released by Nepal Rastra Bank, the average interest on optional savings provided by micro finance companies stood at 6.36 percent. Among the microfinance companies, NIC Asia Microfinance Company was found giving interest of 1 percent on deposits to its customers which is the lowest among all microfinance companies. Although some microfinance companies give interest between 10 to 15 percent, majority of them provide interest in single digit.

Similarly, microfinance companies are found providing interest on compulsory savings at lower rate than the market rate. As per the data of the central bank, the average interest on compulsory savings of microfinance companies stood at 5.28 percent in mid-April 2022. Some microfinance companies had provided interest of 2 percent at that time. Only a handful of microfinance companies had provided interest in double digits for compulsory savings.

The average interest on deposits of commercial banks is 7.41 percent as of mid-July this year.

President of Nepal Microfinance Bankers Association Prakash Raj Sharma insists that the interest provided by microfinance companies should be competitive. He says it is not right to give interest as low as 1 to 2 percent in the present context.

“The interest rate of microfinance companies should be somewhere around that of commercial banks,” said Sharma, adding, “It is not fair to provide interest lower than the rate prevalent in the market.”

As of mid-April this year, the total number of customers of microfinance companies has reached 57,72,000. Among them, the microfinance companies have provided loans of Rs 449 billion to around 32,47,000 customers.

The microfinance companies have collected deposits worth Rs 112.91 including Rs 35.56 under the heading of compulsory savings and Rs 77.34 under optional savings till date.

Microfinance companies have been receiving the deprived sector lending of BFIs and then disbursing the amount among the people of the deprived sector who do not have access to banking system. Although the microfinance companies cannot collect deposits from the general public, they collect deposits from the debtors under the headings of compulsory and optional savings. There is also a mandatory provision of depositing money in microfinance companies in order to receive loans. Therefore, the borrowers are compelled to get low interest on deposits.

The Microfinance Bankers Association has been demanding base rate and spread rate similar to that of commercial banks. President Sharma believes that this will help in proper management of interest rate.