NGOs acting as financial agents told to upgrade

KATHMANDU, FEB 14 - Non-governmental organizations ( NGO s) that have been permitted to provide financial intermediation services will lose their licences if they do not upgrade to micro-finance institutions (MFIs) in the next five months, Nepal Rastra Bank (NRB) said.

The central bank has recently decided not to renew the licences of such organizations if they do not advance to MFI status by mid-July 2015. There are 28 NGO s that have been approved by the central bank to provide savings and credit services.

NRB spokesperson Manamohan Kumar Shrestha said that NGO s were directed to upgrade to MFIs so that they could be brought under the Bank and Financial Institution Act (Bafia). The central bank had issued licences to NGO s under the Financial Intermediation Act long ago.

“Those who come under the Bafia will be regulated by NRB, but those not coming under Bafia will lose their licences to conduct financial intermediation,” he said.

According to him, 23 out of the 28 NGO s have submitted applications for upgradation. NRB has also paved the way for NGO s to upgrade themselves into MFIs through mergers. “They can merge with other licensed NGO s or banks and financial institutions to form a new MFI,” said Shrestha.

The central bank had first allowed NGO S to act as MFIs through the monetary

policy of fiscal year 2012-13. The paid-up capital maintained by NGO s after becoming an MFI is the same that is required as per the current provision.

As per the existing provision, a national-level MFI should have a paid-up capital of Rs 100 million while a regional-level MFI needs to have a paid-up capital of Rs 60 million.

For an MFI working in four to 10 districts, the minimum paid-up capital required is Rs 20 million, and for institutions operating in one to three districts, it is Rs 10 million.

According to the new policy, an NGO upgrading into an MFI can have a 51 percent stake in the new institution. If individual promoters of the NGO also want to invest, they and the NGO can have a combined stake of 51 percent. Such individuals can own up to 25 percent of the new institution, said NRB.

Shrestha said that if new investors want to invest in the new organization, they and the old NGO can have a combined stake of up to 70 percent.

Before upgrading into an MFI, the NGO ’s annual general meeting (AGM) should pass a proposal to do so, according to NRB. They should also submit a copy of the AGM’s decision when applying to NRB to act as an MFI.

Similarly, the NGO has to submit a due diligence audit (DDA) report about its assets and liabilities.

In case certain assets and liabilities will not be passed on to the new institution, their details should also be presented to NRB.

Source: eKantipur