Governor asks microfinance firms to revise rate
KATHMANDU, FEB 15:
Central bank governor has urged microfinance institutions to revise interest rate alleging that they are acting like legal money lenders.
“The current interest rate structure has to be reconsidered as microfinance institutions are charging higher rates to earn greater profits,” said Nepal Rastra Bank (NRB) governor Dr Yubaraj Khatiwada during the inauguration of the Third Microfinance Summit Nepal, here today.
“Microfinance institutions need to stop behaving like moneylenders,” he said, adding that they need to be more transparent and follow better corporate governance.
The governor said that microfinance institutions have to be ready to maintain prudential norms regarding credit to deposit ratio, liquidity ratio, and capital adequacy, if they want to collect deposits from non-members as well.
“Some institutions need to focus on lending to innovative sectors such as renewable energy, bio-gas and organic farming,” he said, adding that they have to enhance the capacity of their borrowers.
“Microfinance programmes are important for promoting banking access but increasing unhealthy competition among microfinance institutions has hurt beneficiaries,” he said, emphasising that the competition among both lending and borrowing institutions and individuals, along with donor agencies has to be minimised.
Microfinance institutions have lately started making it a commercial venture instead of social business, drifting from the core microfinance mission, as it was perceived.
“Though microfinance services have reached 1.8 million households, they still are yet to reach remote and deprived sectors,” said vice chairperson of Center for Microfinance Nepal Dr Harihar Dev Pant. Microfinance services are being provided by 26 microfinance development banks, 33 financial NGOs, and 11,000 financial cooperatives in 64 districts of Nepal.
“The agriculture sector requires commercialisation and entrepreneurship among farmers needs to be enhanced along with financial literacy,” said Dr Pant.
He blamed the unionism among microfinance employees, political intervention and disregard for customer welfare for hurting the sector. “The limit of Rs 60,000 for collateral-free loan set by NRB needs to be expanded so that microfinance institutions can provide loans for setting up micro enterprises,” he said.
“Despite significant contribution to poverty alleviation, microfinance employees are now showing signs of ‘mission-drift’ due to expectations of exponential profits. Though infrastructure and knowledge regarding microfinance has been built, effectiveness has declined,” said chief executive officer of Rural Microfinance Development Center Shankar Man Shrestha.
“Microfinance is moving away from the target population though the number of customers has been growing which is not good for the sector,” he added.
The three-day summit will see discussions on 43 papers presented by experts. There will be more than 900 participants representing 160 institutions at the summit.
At present, existing microfinance institutions in the country are catering to an estimated 1.8 million households by providing hassle free micro loans without collaterals.
Source: THT
