NRB bans traders from extending hire purchase loans

KATHMANDU, SEP 20 -

Automobiles and electronics traders will no longer be allowed to extend hire purchase loans to customers by opening their own company in coordination with the banks and financial institutions (BFIs).

By issuing a circular on Wednesday, Nepal Rastra Bank (NRB) barred such practice making it clear that only licensed banks and financial institutions (BFIs) can collect deposit and provide loan legally.

Automobile and electronic traders have been providing hire purchase loans to their customers by opening their own company after receiving such loans in bulk from the BFIs.

NRB spokesperson Bhaskarmani Gnawali said that some traders were found to have cheated borrowers under such practice for playing inter-mediatory roles. Given that the ordinary people finding it uncomfortable to approach the BFIs for loans, the traders arrange loans for with their own efforts.

The central bank has barred directors, chief executive and managerial level employees of the BFIs from taking out any other types of loans except education, hire purchase, home and household loans.

In the circular, the central bank has also instruct the BFIs to adjust such loans, which had been already disbursed, within mid-July 2014. The central bank’s move is aimed at discouraging them from taking out personal loans.

However, the NRB has opened the door for them to get loans against government’s securities and credit card. It means a person holding govenrment bonds can can take out loans by putting them as collateral.

The central bank has also barred shareholders of any BFIs, whose stake in the BFI concerned is one percent or more and his or her firm as well as his or her partner firms, from auditing the firms that have borrowed loans from his or her BFI.

“Having found such malpractices, we issued this directive to ensure corporate governance,” said Gnawali.

The central bank allows ‘D’ class financial institutions to work as insurance agent for their loanees charging only insurance premium.

Source: The Kathmandu Post