November 8: The Non-Performing Loans (NPL) of microfinance institutions has crossed seven percent, according to a study conducted by Nepal Rastra Bank (NRB).

A study report released by the central bank on Tuesday states that the ratio of NPL of microfinance companies crossed 7 per cent in the last fiscal year while it used to be less than three percent in the previous years.

Following complaints against microfinance institutions in the recent months and public disappointments in some districts, the central bank had formed a seven-member study committee under the leadership of its Executive Director Dr Prakash Kumar Shrestha to identify the problems of microfinance institutions and recommend suggestions to resolve them.

The report has mentioned that decreasing profit and rising non-performing loans have created pressure on the microfinance institutions.

The NRB has stated that the status of microfinance institutions in the country has been deteriorating due to their excessive focus on profitmaking, poor internal control mechanism and poor institutional governance.    
Likewise, lack of training of the employees, heavy concentration of microfinance institutions on the urban areas and limited access to the rural community have been identified as some of the challenges faced by this sector, the report states.

A report further mentioned that excessive loan to a few clients, excessive expanded system, weak institutional governance, failing credit discipline, economic slowdown and deviation from the organizational goals have created problems and pressures on the microfinance sector.    
The report has offered more than 180 recommendations in 20 main themes for short-term, mid-term and long-term. The key recommendations are in the credit system, interest rate, microcredit and target community, customer protection, internal control mechanism and others.    
According to the report, presence of microfinance companies has centered in comparatively developed areas having more economic activities.    
The number of branches of the microfinance institutions is high in the districts of Tarai and low in the remote and mountainous districts. The branches of the microfinances are in all districts but their presence is not in almost 100 local levels so far.    
Concentration of the microfinances based on credit, branch and other indicators is high in the districts of Bardiya, Morang, Bara, Rupandehi and few others.