March 15: The non-performing loans (NPL) of microfinance financial companies have increased by 1.74 percentage points in a period of one year. Due to the decline in economic activities, the ability of customers to pay loan installments has decreased. In addition to this, the movement that started with the demand of microfinance loan waiver has affected the recovery of bad debt.

According to Nepal Rastra Bank (NRB), by the end of December of the current fiscal year (FY), non-performing loans of microfinance finance companies have reached 4.68 percent. As of December 2022, microfinance institutions have disbursed a total credit of Rs 391.21 billion, and the bad loans stand at Rs 18.33 billion.

In December 2021, non-performing loans of microfinance companies was 2.94 percent. Similarly, in June 2022, non-performing loans of microfinance companies was 2.56 percent.

Due to the reduction in economic activities mainly because of the Covid-19 pandemic and the Russia-Ukraine tension, the collection of microfinance has also been affected. Similarly, Prakashraj Sharma, president of Nepal Micro Finance Bankers Association, says that non-performing loans are increasing due to the recent agitations by microfinance clients demanding waiver of their loans.

At present, 64 microfinance institutions have formed 1,381 groups and are providing financial services to 59,88,000 people. Among them, 3.2 million members have taken loans.

Profits of microfinance companies also decreased in January after loan investment and recovery were affected.

By forming a group of ordinary people who do not have access to banks and financial institutions, microfinance can invest up to Rs 1.5 million with collateral and up to Rs 700,000 without collateral. There is a provision that microfinance companies can charge a maximum of 15 percent interest and 1.5 percent service charge on loans.

The central bank had issued a directive on December 25 that bars an individual from taking loans microfinance company from receiving credit from banks. The NRB stated that the problem has arisen because the same person has taken a loan from more than one microfinance institution.

The central bank has also arranged that if microfinance proposes to distribute dividends more than 15 percent annually, 50 percent of the proposed dividend above 15 percent should be deposited in the general reserve fund and 10 percent in the institutional social responsibility fund. Similarly, the central bank has instructed that the minimum interest rate of deposits/savings should be at least 50 percent of the maximum interest rate of loans provided by microfinance financial institutions.