Institutes that work in favor of the poor: How did the microfinance institutes perform this quarter?

In a developing country like Nepal, where majority of population still lacks a proper access to finance, microfinance and co-operatives have been designed to fulfill the need of such population. In Nepal, there are 66 microfinance companies in operation. Out of these, 38 microfinanace institutes are listed. The objective of microfinance institute of the country is to provide access of finance to the bankable poor and entrepreneurial poor. However, the dark side of microfinance sector in Nepal lies on the fact that most of these remain concentrated in urban areas of the country. 

The majority of microfinance institutes have published their fourth quarter report as of 2074/75. The overall analysis of majority of indicators such as paid up capital, reserve and surplus, net profit, earning per share (EPS), PE ratio, Net worth per share, promotes investor’s understandings on performance assessment of these microfinance units.

The further analysis focuses only on the 38 listed microfinance institutes. The non-listed microfinance institutes are also not compared with the listed microfinance institutes.

 

 Paid-up capital: The central bank has directed national level, regional level and district level microfinance institutes to increase their paid up capital requirement. The wholesale level microfinance should meet the paid up capital of Rs 600 million. The national level microfinance institutes should have the paid up capital of Rs 100 million, regional level microfinance of Rs 60 million and finally, district level microfinance of Rs 10 million. The microfinance institutes with highest paid up capital are:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a paid up capital worth Rs 1 arba
  2. Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with a paid up capital worth Rs 1 arba
  3. Rural Microfinance Development Centre Limited (RMDC) with a paid up capital worth Rs 72.67 crore

Reserve and surplus: The microfinance institutes are required to serve the riskiest category of the country. So, a reserve and surplus can be useful at times of crisis. The microfinance institutes with highest amount of reserve fund are as follows:

  1. Rural Microfinance Development Centre Limited (RMDC) with a reserve of Rs 143.22 crores
  2. Sana Kisan Bikas Bank Limited (SKBBL) with a reserve of Rs 137.75 crores
  3. Nirdhan Utthan Bank Limited with a reserve of Rs 125.10 crores

Net Profit: As of the fourth quarter report of FY 2074/75, the listed microfinance institutes with the highest net profit are:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a net profit of Rs 66.39 crores
  2. Nirdhan Utthan Bank Limited (NUBL) with a net profit of Rs 55.92crores
  3. Sana Kisan Bikas Bank Limited (SKBBL) with a net profit of Rs 40.09 crores

Net worth per share: Net worth per share can be defined as an expression for net assets value per share. The microfinance institutes with the highest net worth per share are as follows:

  1. Mahuli Samudayik Laghubitta Bittiya Sanstha Limited (MSLB) with net worth per share of Rs 351.19
  2. Forward Community Microfinance Bittiya Sanstha (FOWAD) with a net worth of Rs 346.03
  3. Sana Kisan Bikas Bank Limited (SKBBL) with a net worth of Rs 319.06.

Earnings per share: The increment of paid up capital has influenced the EPS of majority of microfinance institutes. Yet some of the microfinance institutes have demonstrated higher level of EPS such as:

  1. Forward Community Microfinance Bittiya Sanstha (FOWAD) with an EPS of Rs 93.63.
  2. National Microfinance Bittiya Sanstha Limited (NMFBS) with an EPS of Rs 71.26
  3. Swabalamban Laghubitta Bittiya Sanstha Limited (SWBBL) with an EPS of Rs 68.86

PE ratio:  The general rule of thumb in finance believes the least PE ratio is better for investors. So, following the general rule, the microfinance institutes with least PE ratio are:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a PE ratio of 13.65 times
  2. Nirdhan Utthan Bank Limited (NUBL) with a PE ratio of 16.81 times
  3. Sana Kisan Bikas Bank Limited (SKBBL) with a PE ratio of 17.51 times

 In a nutshell:

The microfinance institutes have to face a trade off when it comes to their profitability and outreach to the bankable poor. Dear readers, do you think microfinance institutes in Nepal have the capability to develop innovative products for the bankable poor? Why do you think many people in rural areas still lack access to finance although the microfinance industry is rapidly mushrooming? Please write your opinions in the comment section below.

(Disclaimer:  Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)