Deprived sector lending not encouraging

KATHMANDU, MAR 21:

Despite the constant push from the central bank, financial institutions have not been able to fulfil deprived sector lending obligation.

The designated deprived sector loans comprise of only 3.7 per cent of the total loans floated by financial institutions. Commercial banks and finance companies are short of meeting Nepal Rastra Bank (NRB) dictated deprived sector portfolio, by the first half of the current fiscal year.

By the end of the second quarter of the current fiscal year, financial institutions including commercial banks, development banks and finance companies had directed loans worth Rs 33.08 billion to the deprived sector. The total lending by financial institutions stands at about Rs 887.2 billion by the review period. By the end of the last fiscal year, financial institutions had lent 3.4 per cent of its total lending to this sector.

Deprived sector lending refers to small loans that are provided to poor and rural people for small projects. The loans are supposed to be one of the measures used by the central bank to promote financial inclusion and establish the habit of formal banking in the rural and poor areas.

According to the monetary policy, commercial banks have to lend

four per cent of their total loans to the deprived sector, while development banks and finance companies have

to lend 3.5 per cent and three per cent, respectively.

The amount will be increased by 0.5 percentage point next year.

Commercial banks have lent Rs 27.08 billion, development banks have lent Rs 4.04 billion and finance companies have lent Rs 1.95 billion in the first six months, according to NRB’s data. The central bank allows banks to provide loans of up to Rs 100,000 without collateral.

Financial institutions are apprehensive about looking for borrowers due to the cost associated with small and remote lending. Nepal Rastra Bank has allowed financial institutions to be engaged in wholesale lending to microfinance institutions including NRB licensed cooperatives instead of approaching target population themselves.

“Financial institutions will be able to increase their outreach to the sector gradually, but if they ignore the needy sector then it is the job of the central bank to push them,” said spokesperson for Nepal Rastra Bank Bhaskar Mani Gyanwali.

In the first quarter of the current fiscal year, NRB had slapped a monetary fine on Grand Bank Nepal for not fulfilling the deprived sector lending obligation.

The number of microfinance institutions has increased in the last five years as wholesale lending by banks provide an easy source of funds.

The number of microfinance development banks operating in the country at present has reached 25. In 2007, there were 12 microfinance development banks licensed by the central bank.

Source: THT