Microfinances operating in quake-hit districts confident about recovery

Amendra Pokhrel and Priyanka Jha
ShareSansar, May 22, 2015:

The deadly earthquake of April 25 (Baishakh 12), the worst to hit Nepal in about 80 years, has battered the country’s financial sector.

While Nepal’s only share market has not been able to come into operation since the mega-earthquake struck, most of the other sectors of the economy have also been thrown into disarray.

From banks and financial institutions (BFIs) to hydropower to insurance to manufacturing and tourism, all have been hit hard by the earthquake. But some microfinance companies whose business was centered in the districts have suffered terrible losses and they may need more time and support to recover fully.

Of the total 36 microfinance companies, around eight have a large number of their member clients in the districts worst-affected by the earthquake.       

The microfinance companies which have invested heavily in the districts worst hit by earthquakes are Deprosc Laghubitta Bikas Bank Limited, Mirmire Microfinance Development Bank, Reliable Microfinance Bittiya Sansatha Limited, Samudayik Laghubitta Bittiya Sanstha Limited, Clean Village Microfinance Bittiya Sanstha Limited, Kalika Microcredit Development Bank and Nepal Sewa microfinance.  

Apart from these microfinance companies, there are other national level microfinance companies some of whom might have floated loans in the districts affected by the earthquake.

The national level microfinance companies are: Rural Microfinance Development Centre, Nirdhan Utthan Bank Limited, Chhimek Microfinance Bank Limited, Swabalamban Laghu Bitta Bikas Limited, Sana Kisan Bikas Bank Limited, Nerude Laghu Bitta Bikas Bank Limited, Laxmi Microfinance Bittiya Sanstha Limited, ILFCO Microfinance Bittiya Sansatha Limited, Mahila Sahayatra Microfinance Bittiya Sanstha Limited, Forward Community Microfinance Bittiya Sanstha Limited, Mero Microfinance Bittiya Sanstha Limited, RSDC Laghubitta Bittiya Sanstha Limited, National Microfinance Bittiya Sanstha Limited, Nepal Grameen Bikas Bank Limited and Swadeshi Laghubitta Bittiya Sansath Limited.       

Although exact details have yet to emerge, the losses to the microfinance sector due to the magnitude 7.8 earthquake that rocked the country on April 25 could be staggering.

Mr Sharada Prasad Kattel, chief executive officer of Deprosc, said most of our operations and clients are located in the worst quake-hit areas. “We have an outstanding loan of Rs 2 arba and 55 crore and we believe Rs 76 crore of that loan is at risk,” said Mr Kattel.

Mr Kattel believes recovering the loan may take a bit longer but it would not be very difficult. “We provide loans of maximum Rs 2 lakhs. Very few clients have taken loans of Rs 2 lakhs. Most of them take loans of Rs 40,000 to 50,000. Since we don’t have huge loans, we will recover it after certain time,” he said.

Of Deprosc’s 11,04,000 of our members, 36,000 have been affected by the earthquake. And out of its 68 branches, 35 have suffered damages. “Even the houses of 80 to 85 of our employees have been damaged. We have been visiting the affected areas to gather more information,” said Mr Kattel.

Mr Kattel stressed that if commercial banks, who lend money to microfinance companies, kept providing them with funds just as they did prior to the quake, it would not take long for things to get better.

“Until now we had no difficulty in re-paying the loans and if the commercial banks keep providing us with funds as they have been doing, we should be able to bring the situation to the pre-quake level in 5 to 6 months,” said Mr Kattel.

Meanwhile, Nepal Microfinance Bankers’ Association has already sought 2-3 months grace period for loan pay back from Nepal Rastra Bank. “Apart from agreeing on the grace period, Nepal Rastra Bank can breathe a new lease of life by engaging microfinance companies in the reconstruction of homes in rural areas that microfinance companies primarily serve,” said Mr Kattel.   

Dipendra Banjade, an official with Reliable Mircofinance Bittiya Sansatha Limited, said, around Rs 15 crore worth of loans floated by the company might have been affected by the earthquake.

Still, Mr Banjade thinks recovery may not be as difficult as it looks now. “We are hopeful that the loans will be recovered in a period of one year. There is only 2-3% chance of default,” he said.

Mr Banjade said 5 to 7 of the company’s members have died and five branches located in Dhading, Sidhupalchowk, Rauswa, Trishuli and Nuwakot have been seriously affected.

“Commercial banks can ease our troubles during the time of such crisis by lowering the interest rates on borrowings,” he said.

According to Mr Banjade, NRB can help microfinance deal with the situation by relaxing the rules on loan provisioning.

“If the NRB is providing funding to the ABC class banks, they should also provide such funding to D class financial institution as well. Also, if the government is planning loan waiver, it should also consider paying off the loans of microfinance companies,” he added.

Company secretary of Nirdhan Utthan Bank Limited, Krishna Chaudhary, said around Rs 7 crore worth of the loans floated by the company is at risk. “Five of our clients have lost their lives and homes of around 3,629 have been damaged,” said Chaudhary.

Chief Executive Officer of Kalika Micro Credit Development Bank, Mr. Keshab Kumar Paudel, said the company’s loans amounting to Rs 40-50 lakh have been exposed to risk by the earthquake. Its branches located in Gorkha, Dhading, Makwanpur and Parbat have been most affected.

“It would take at least 2 to 3 months for things to get back to normal and it might take nearly 1 year to fully recover the losses,” said Mr Paudel. “Two of our clients have died and 400 clients have been affected and the homes of around 50% of them have been destroyed by the earthquake.”

But Mr Paudel said the company was prepared for such unexpected events. “We had already established a loan protection fund so we will not have much problem in overcoming this crisis,” he said.