KATHMANDU, July 29: Nepal Rastra Bank (NRB) has reduced the limit of service charge during the disbursement of loans from microfinance institutions by revising its Unified Directives, 2079, for such institutions. 

The new amendment includes reduction in service fees, changes to loan disbursement practices, and updated guidelines for client protection and employee management.  

“When disbursing a loan, no amount other than the specified service fee can be deducted from the approved loan amount and kept as savings," reads the revised directive. "While disbursing the loan, microfinance institutions can charge a service fee of up to 1.3% of the approved loan. In case of providing loans for a period of less than one year, they can only charge a service fee proportional to that rate based on the loan period, not exceeding 1.3% per annum.”

The earlier provision allowed microfinance institutions to charge a service fee of up to 1.5% of the approved loans.

The new amendment has also allowed a borrower to get loans from two microfinance institutions. 

Earlier, borrowers could secure loans only from a single microfinance institution.

“When providing micro-loans without collateral or under the security of collateral, a maximum of two microfinance institutions can provide loans to one borrower without exceeding the loan limit as per this provision," reads the revised unified directives. 

The new revision also mandates that borrowers who have taken loans from commercial banks, development banks, or finance companies will not be eligible to take loans from microfinance institutions.

Focusing on poor and low-income people, there is a provision that small loans of up to Rs 500,000 can be provided per group member for the purpose of running a small enterprise or business. 

A limit of Rs 700,000 has been set for group members who have availed loans in the past two years and are in good standing. 

The central bank has introduced a new arrangement to provide a family guaranteed loan of up to Rs 25,000 per family.

The guidelines related to the Client Protection Fund also have been revised. 

Previously, if a company proposed to allocate 1% of its net profit and more than 15% of its annual dividend (cash or bonus), it was required to allocate 35% of the proposed dividend to the Client Protection Fund. 

According to the revised provision, a company will have to keep an amount equal to 1.5% of its related fiscal year’ net profit by mid-July 2025, 2% of its related fiscal year’s net profit by mid-July 2026 and 3% of its related fiscal year’s net profit by mid-July 2027 in its Client Protection Fund.

The provision to retain 35% of the dividend exceeding 15% remains unchanged. 

The central bank has also directed all microfinance institutions to carry out an internal audit of each branch office at least once a year.

The provisions regarding the blacklisting of microfinance borrowers have also been amended. 

Even if the microfinance financial institution includes a non-paying borrower in the blacklist of the credit information centre, the institution may arrange to remove the borrower from the blacklist for six months if it believes the borrower will repay the loan soon.

Otherwise, the institution will have to recommend the borrower be included in the blacklist.

Borrowers who take loans from microfinance institutions and do not repay them will need to be classified accordingly.

A new system related to the selection, transfer, promotion, posting, and evaluation of employees in microfinance institutions has been introduced through the revised directives. -- RSS