Microfinance companies are 'D' classified banks licensed by NRB which targets individuals and small businesses that lack access to conventional banking services. The prime objective of microfinance companies is to provide micro-credit and other financial facilities to underprivileged people with little or no capital.
Outreach of Nepalese Micro-Finance Institutions (MFIs) has increased significantly since the beginning of the millennium, however, most of them have yet to reach financial self-sufficiency and very few have achieved operational self-sufficiency.
The fourth quarterly report of all microfinance has been published recently. With available data from their Q4 reports, we can analyze their performance, financial position, growth, and many more. But there are so many reports to look at, read and analyze which might be hectic and time-consuming.
Sharesansar has picked the most important metrics to help investors analyze the companies and compare each company with its peers. Therefore, in this article, we will be focusing on the comparison of the most important metrics which will give you as an investor an overview as to which companies are investment-worthy. So, let's take a deep look into it.
Note: There are 56 MFIs that issued shares to the general public, out of which 54 microfinance companies are listed on Nepal Stock Exchange (NEPSE). Apart from this, Aviyan (AVI) and Dhaulagiri (DLBS) Laghubitta Bittiya Sanstha Limited have already issued IPO but are yet to be listed in the NEPSE.
Thus, the compiled data of 56 microfinance companies are presented in the table below.
During the review period, Microfinance Sector profit declined by 2.26% compared to the previous year.
Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has reported the highest net profit in this quarter with a total of Rs. 1.03 Arba in the National category. CBBL is closely trailed by Nirdhan Utthan Laghubitta Bittiya Sanstha (NUBL) with a profit of Rs. 1.02 Arba. Forward Microfinance Laghubitta Bittiya Sanstha Limited (FOWAD) has secured the third position with a net profit of Rs. 84.54 crores.
Now coming towards the National-Wholesale level, Sana Kisan (SKBBL) reported the highest net profit of Rs 70.83 Crores for the Q4. Likewise, at the regional level Mithila Laghubitta (MLBBL) reported a net profit of Rs. 5.77 Crores.
Out of the total 56 Microfinance companies in Nepal, 26 companies reported reduced Net Profit for the fourth quarter of FY 78/79 as compared to the same period of the corresponding year.
In terms of share capital, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has the highest capital of Rs. 232.41 crores, followed by Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with Rs. 219.55 crores in the national level.
The same for the National-Wholesale level is led by Sana Kisan (SKBBL) with a total share capital of Rs. 156.44 Crores. Likewise, for the regional level, Mithila Laghubitta (MLBBL) reported the highest share capital of Rs. 17.04 Crores.
At the national level, Dhaulagiri Laghubitta Bittiya Sanstha Limited (DLBS) has the lowest capital of Rs. 7 crores (Capital after IPO yet to be adjusted).
Reserve and Surplus:
Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has the highest reserve amounting to Rs. 358.37 crores in terms of National Level.
In the National-wholesale working area, Sana Kisan Laghubiita Bittya Sanstha Limited (SKBBL) has the highest reserve of Rs. 259.81 crores.
At the national level, Aviyan Laghubitta Bittiya Sanstha Limited (AVI) has the lowest reserve of Rs. 1.91 crores as per the Q4 report of the fiscal year 2078/79.
Now coming towards the regional level, Upakar Laghubitta (ULBSL) reported the highest reserves and surplus of Rs. 17.03 Crores.
Companies with optimal reserves are considered secure and financially stable.
Borrowings and Deposits:
For National Wholesale- In the context of borrowings, Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) comes in the first position with total borrowings of Rs. 16.30 Arba.
For National - NIC Asia Laghubitta Bittiya Sanstha Limited (NICLBSL) reports the highest borrowings worth Rs. 16.31 Arba and the lowest borrowings is reported by Nesdo Samriddha Laghubitta (NESDO) worth Rs. 44 Crores.
For deposits, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) reported the highest deposits of Rs. 27.02 Arba.
For Regional Level - Swabhimaan Laghubitta (SMFBS) reports the highest borrowings of Rs. 1.33 Arba and the lowest is reported by Adarsha Laghubitta (ADLB) worth Rs. 11 Crores.
For deposits, Upakar Laghubitta (ULBSL) reported the highest deposits of Rs. 1.04 Arba for Q4.
The industry average borrowings stand at Rs. 3.95 Arba and deposits stand at Rs. 2.76 Arba.
Loans and Advances:
As per the reports, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has disbursed the highest amount of loan of Rs. 32.89 Arba.
In terms of the National-wholesale level, Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) reports loans to its customer worth Rs. 29.35 Arba.
Till this quarter of the fiscal year, a total of Rs. 4.34 Kharba of loan has been disbursed by all the microfinance combined.
Net Interest Income:
Net interest income is the difference between the revenue a bank earns from its interest-bearing assets and the expenses of its interest-bearing liabilities. High Net Interest Income indicates the investment efficiency of any financial company.
Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has a net interest income of Rs. 249.05 crore which is the highest among all microfinance companies. Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) comes in the second position with a net interest income of Rs. 209.74 crores.
If we look into working area-wise, Sana Kisan (SKBBL) has the highest net interest income of Rs. 134.73 Crores in the wholesale-national category.
Janautthan Laghubitta Bittiya Sanstha Limited (JSLBB) has the highest net interest income of Rs. 17.13 crores in the regional category.
As per the provisions for unpaid risk for the fourth quarter of 2078/79, SKBBL is in the lead with an unpaid risk of Rs. 5.59 Crores. Also, from the national working area, CBBL has the highest net provision of Rs 24.13 Crores in the same quarter. Likewise, SLBSL has the highest net provision of Rs. 2.48 Crores in terms of the regional microfinance company.
Non-Performing Loan (NPL):
In terms of non-performing loans, First Microfinance Laghubitta Bittiya Sanstha Limited (FMDBL) has reported an NPL of 0.00% and RMDC Laghubitta Bittiya Sanstha Limited (RMDC) has reported an NPL of 0.05% in terms of National-wholesale working area.
The highest NPL is reported by Aarambha Chautari Laghubitta Bittiya Sanstha Limited (ACLBSL) with an NPL of 4.94% at the national level, whereas, the lowest is of 0.83% of CBBL from the same category.
Likewise, Wean Nepal Laghubitta Bittiya Sanstha Limited (WNLB) has reported the highest NPL of 4.93% in terms of the regional working area.
Capital Fund to RWA (Capital Adequacy Ratio):
National Wholesale - According to the Q4 reports of the fiscal year 2078/79, RMDC Laghubitta Bittiya Sanstha Limited (RMDC) has reported the highest Capital Adequacy Ratio of 24.61%. It is followed by RSDC Laghubitta Bittiya Sanstha Limited (RSDC), which has a CAR of 18.89%.
National- Nesdo Sambridha (NESDO) reported highest CAR of 19.25% and Aviyan Laghubitta (AVI) reported the lowest CAR of 8.56%.
Regional- Manakamana Smart Laghubitta (MKLB) has reported the highest Capital Adequacy Ratio of 15.75%.
Earnings per Share:
Sana Kisan (SKBBL) has reported the highest EPS of Rs. 45.28 for the national-wholesale area. Likewise, Mahila Laghubitta Bittiya Sanstha Limited (MLBSL) reported an EPS of Rs. 101.76 in terms of the national working area and lastly, Upakar Laghubitta (ULBSL) reported an EPS of Rs. 68.09.
The average EPS in the microfinance sector is Rs. 37.67.
Networth Per Share:
As per the fourth quarterly report, Jalpa Samudayik (JALPA) has the highest net worth value per share of Rs. 395.42. In the national-wholesale region, RMDC has the highest net worth of Rs. 268.18.
Likewise, Upakar Laghubitta (ULBSL) in terms of the regional area has the highest net worth per share of Rs. 359.55.
Price to Earnings:
P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. And so generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors.
Sana Kisan (SKBBL) has reported the lowest P/E ratio of 23.52, Swabalamban Laghubitta (SWBBL) has P/E ratio of 18.72 and Andhikhola Laghubitta has P/E ratio of 30.06, in terms of National-wholesale, National, and regional working place respectively.
NOTE: Above P/E is calculated by taking the quarter-end price. Investors are requested to calculate the P/E with the current market price before making an investment decision.
While National MFIs are extremely successful in spreading their services throughout urban and densely populated peri-urban areas, regional-based MFIs have a comparative advantage in spreading their services over more remote locations.
Regardless of location, the micro-finance industry is increasingly adopting best practice standards and regulations and correcting any potential market distortions. As a result, the sector will be able to develop further into a successful business offering financial services to the underprivileged citizens of Nepal.
Note: The scope of fundamental analysis should not be limited only to the company's financial report. Further, analysis of the overall economy, macroeconomic indicators, liquidity situation, and sectoral analysis should be carried out to make rational investment decisions.
The summary of the microfinance industry report for Q4 of FY 2078/79.