NRB Issues Directives for Microfinance Companies; Merger and Acquisition Taken Strictly

Wed, Jul 29, 2020 11:51 AM on Economy, Stock Market,

Nepal Rastra Bank (NRB) has decided to direct cross-holding microfinance to merge. The NRB highlighted such an arrangement on Tuesday by issuing instructions for the implementation of monetary policy for FY 2077/78.

In addition to the facilities specified in the Merger and Acquisition of Banks and Financial Institutions Regulation 2073, additional facilitations will be given to the microfinance institutions to be merged or acquired.

The NRB has directed to merge the organizations which are directly or indirectly owned and controlled by the same family and business group and have established business relations.

Furthermore, microfinance financial institutions are not allowed to issue right shares. Since merger was encouraged by increasing capital requirements for microfinance companies, they had tried to increase their capital by issuing the right shares themselves. This is why the instruction to prevent microfinance companies from issuing the right shares was issued.

Microfinance companies with a distributable profit higher than 5% of their paid-up capital will be allowed to distribute a maximum of 30% of dividends as cash dividend. However, companies that meet this requirement can't distribute cash dividend that amounts to a larger sum than their Deposit Weighted Average maintained in Ashad 2077.

Moreover, microfinance companies can set a maximum interest rate of 15% for their loan products. Earlier, microfinance institutions used to charge up to 18% interest on their customers.

Now, microfinance companies will not be allowed to charge more than a 1.5% service fee. Earlier, they were allowed to charge up to 2%. "The institution will not be allowed to charge any service charge from the customer for operating a savings/deposit account," the directive said.

 

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