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 first quarterly report of all microfinance has been published recently. With available data from their Q1 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: As of October, 2022, there are a total of 65 MFIs in Nepal, out of which 59 microfinance companies are currently listed on Nepal Stock Exchange (NEPSE).
During the review period, Microfinance Sector profit declined by 42.23% 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. 32.91 Crores in the National category. CBBL is closely trailed by JBLB with a profit of Rs. 14.76 Crores.
Now coming towards the National-Wholesale level, Sana Kisan (SKBBL) reported the highest net profit of Rs 23.27 Crores for the Q1. Likewise, at the regional level Samudayik Laghubitta Bittiya Sanstha Limited reported a net profit of Rs. 97 Lakhs.
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. 10.31 crores.
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. 285.04 crores.
At the national level, Aviyan Laghubitta Bittiya Sanstha Limited (AVYAN) has the lowest reserve of Rs. 1.91 crores as per the Q1 report of the fiscal year 2079/80.
Now coming towards the regional level, Unique Nepal Laghubitta Bittiya Sanstha Limited (UNLBSL) reported the highest reserves and surplus of Rs. 26.16 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. 17.77 Arba.
For National - NIC Asia Laghubitta Bittiya Sanstha Limited (NICLBSL) reports the highest borrowings worth Rs. 15.87 Arba and the lowest borrowings is reported by Nesdo Samriddha Laghubitta (NESDO) worth Rs. 41 Crores.
For deposits, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) reported the highest deposits of Rs. 28.52 Arba.
For Regional Level - Janautthan Samudayic Laghubitta Bittiya Sanstha Limited (JSLBB) reports the highest borrowings of Rs. 1.45 Arba and the lowest is reported by Adarsha Laghubitta (ADLB) worth Rs. 12 Crores.
The industry average borrowings stand at Rs. 3.66 Arba and deposits stand at Rs. 2.78 Arba.
As per the provisions for possible losses and write backs for the first quarter, SKBBL is in the lead with the highest net provision (reversal) of Rs. 3.45 Crores. Also, from the national working area, NADEP has the highest negative provision of Rs 2.63 Crores in the same quarter. Likewise, GBLBS has the highest net provision of Rs. 1.34 Arba in terms of the national microfinance company.
Loans and Advances:
As per the reports, Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) has disbursed the highest amount of loan of Rs. 33.59 Arba.
In terms of the National-wholesale level, Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) reports loans to its customer worth Rs. 29.93 Arba.
Till this quarter of the fiscal year, a total of Rs. 4.47 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. 74 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. 48.01 crores.
If we look into working area-wise, Sana Kisan (SKBBL) has the highest net interest income of Rs. 43 Crores in the wholesale-national category.
Unique Nepal Laghubitta Bittiya Sanstha Limited (UNLBSL) has the highest net interest income of Rs. 5.89 crores in the regional category.
Earnings per Share:
Sana Kisan (SKBBL) has reported the highest EPS of Rs. 59.52 for the national-wholesale area. Likewise, Nesdo Sambridha Laghubitta Bittiya Sanstha Limited(NESDO) reported an EPS of Rs. 88.57 in terms of the national working area and lastly, Samudayik Laghubitta Bittiya Sanstha Limited (SLBSL) reported an EPS of Rs. 29.32.
The average EPS in the microfinance sector is Rs. 16.05.
Networth Per Share:
As per the first quarterly report, Nesdo Sambridha Laghubitta Bittiya Sanstha Limited(NESDO) has the highest net worth value per share of Rs. 347.35. In the national-wholesale region, RMDC has the highest net worth of Rs. 275.30.
Likewise, Upakar Laghubitta (ULBSL) in terms of the regional area has the highest net worth per share of Rs. 368.55.
Capital Fund to RWA (Capital Adequacy Ratio):
National Wholesale - According to the Q1 reports of the fiscal year 2079/80, RMDC Laghubitta Bittiya Sanstha Limited (RMDC) has reported the highest Capital Adequacy Ratio of 24.78%. It is followed by RSDC Laghubitta Bittiya Sanstha Limited (RSDC), which has a CAR of 16.45%.
National- Nesdo Sambridha (NESDO) reported highest CAR of 18.38% and Sabaiko Laghubitta Bittiya Sanstha Limited (SABSL) reported the lowest CAR of 8.85%.
Regional- Manakamana Smart Laghubitta (MKLB) has reported the highest Capital Adequacy Ratio of 16.09%.
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 Sana Kisan Laghubitta Bittiya Sanstha Limited (SKBBL) has reported an NPL of 0.75% in terms of National-wholesale working area.
The highest NPL is reported by Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with an NPL of 7.14% at the national level, whereas, the lowest is of 0.81% of CBBL from the same category.
Likewise, Manakamana Smart Laghubitta Bittiya Sanstha Limited (MKLB) has reported the highest NPL of 7.85% in terms of the regional working area.
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.
RSDC has reported the highest P/E ratio of 25.59, Civil Laghubitta Bittiya Sanstha Limited (CLBSL) has lowest P/E ratio of 10.11 and Samudayik Laghubitta has P/E ratio of 43.18, 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.
Finally, the table below shows the overall picture with the major indicators of 59 microfinance companies as of the first quarter of FY 2079/2080.