September 17: Microfinance companies have been providing loans against collateral as well as collateral-free loans by forming groups of poor and underprivileged people. The microfinance companies are currently struggling to recover their loans.

Due to the decline in economic activities, the ability of the borrowers to pay their debts has decreased, while the non-payment movement has caused problems in debt recovery.

The debt recovery has been affected due to the fact that the same person has been taking loans from more than one organization and investing in non-productive sectors.

As the loan recovery has been affected, the bad loans of microfinance companies have increased significantly. According to the data of Nepal Rastra Bank, the average bad loans of microfinance companies was 2.97 percent in June 2021. By March 2022, bad loans reached 7.43 percent. Although the official data has not been published, it is estimated that the bad loans of microfinance companies have reached about 10 percent in June 2023.

The Nepal Rastra Bank in June issued instructions and extended the deadline of repayment of loans of the customers who could not pay their loans to the microfinance companies by one year.

The central bank had made an arrangement to restructure the loans for the active borrowers of microfinance companies, allowing them to pay a minimum interest amount of 5 percent of the outstanding interest to reschedule the loan.

Janadarn Dev Pant, chief executive officer of Nirdhan Utthan Lagubitta Bittiya Sansthan, says that if the rescheduling facility is not provided, the ratio of bad loans of microfinance companies will double.

"The concession given by the central bank has made it easier for microfinance companies to manage bad loans," he said.

As of March last year, there were 5.99 customers of 63 microfinance companies, and the number of borrowers stood at 3.1 million. Microfinance institutions have invested a total of Rs 441 billion in loans.

The central bank had formed a task force under the coordination of the Executive Director of the Economic Research Department of NRB, Dr Prakash Kumar Shrestha in the month of Shrawn (mid-July to mid-August) after the members of microfinance companies protested saying that they were suffering from the operators of microfinance companies. 

Although the task force has submitted a preliminary report, it is working with a deadline extension till mid-September.

Lately, the microfinance companies have not been strict in debt recovery due to the customers’ agitation. Microfinance institutions have not carried out activities such as putting unnecessary pressure on those who do not pay their loans.