NRB opens hire-purchase lending for traders
KATHMANDU:
Buyers can from now on obtain loans from traders to purchase automobiles and electronic gadgets, instead of approaching financial institutions.
The dealers of two-wheelers, cars, electronic appliances and gadgets can directly provide hire-purchase loans to buyers by establishing their own hire-purchase company based on Nepal Rastra Bank (NRB)’s rule.
The central bank has lifted the ban on such hire-purchase loans being provided by dealers by issuing the Hire Purchase Company Approval Procedure 2014. A hire-purchase company can provide loans to consumers to make purchase of movable properties and repay the loan in installments. The company is required to obtain a
licence from NRB to provide direct lending to its customers. At present, financial institutions’ portfolio contain such loans worth Rs 54 billion, as of mid-January, 2014.
According to the new regulation, a hire-purchase company needs to have a paid up capital of Rs 100
million and maintain net worth of Rs 100 million. In addition, the company can only lend up to 10 times the net worth.
In September 2012, NRB had forbidden traders involved in selling automobiles and gadgets to forward loans to make sales. Most automobile dealers, and electronic appliances and gadgets suppliers often sell products in easy installments, and people with steady incomes can buy goods without having to pay an initial lump sum. NRB’s ban on such activities had hit the business of many traders. Hire-purchase loan refers to borrowing to buy goods through installment payments over time.
“Back then we had asked traders to stop such hire-purchase lending because it was an informal market, without any regulating authority, which left both sellers and buyers vulnerable,” said spokesperson of NRB Bhaskar Mani Gnawali. “However, by licensing hire-purchase companies, NRB will be liable to regulate them and ensure no one is cheated, especially consumers.”
Hire-purchase companies will fall under the regulatory ambit of NRB. According to the regulation, such companies have to provide NRB the details regarding their hire-purchase deals on a half-yearly basis — in mid-July and mid-January. Likewise, the company has to publish their audited balance sheet prepared in prescribed format of Company Act 2063 after the end of each fiscal year.
“These companies will not be allowed to collect deposits in any circumstances,” pointed out Gnawali.
On the other hand, like a financial institution, hire-purchase companies can charge interest rates on borrowers. However, NRB can regulate the rate if it deems necessary, says the procedure. If the company’s source of fund is a loan from financial institutions, it can charge an interest of up to 3.5 per cent of the rates the company is paying to its lending bank.
Moreover, in case of non-payment of installments by the lender, the hire-purchase company also has to set aside 50 per cent of outstanding payment to cover possible loan loss.
Information officer mandated in FIs
All financial institutions will have to appoint an information officer from now on. Nepal Rastra Bank has asked all 214 licensed financial institutions — including commercial banks, development banks, finance companies and microfinance development banks — in line with National Information Commission decree. The presence of an information officer will help the public access financial institutions’ information easily. NRB has also established a refinancing grievance hearing unit to support borrowers who have been unable to get refinancing facility from NRB for their existing loans at financial institutions. NRB provides refinancing facility for loans floated by financial institutions in productive sectors at a low interest rate.
Source: THT
