NRB Permits Microfinance Firms to Distribute Up to 25% Dividend Based on Capital Adequacy and NPL Ratios

Nepal Rastra Bank (NRB) has introduced a new provision enabling microfinance institutions to distribute dividends of up to 25%, based on their capital adequacy ratio and the non-performing loan (NPL) ratio as of the end of the last fiscal year (Ashad).

Previously, if a microfinance company proposed a dividend exceeding 15%, it had to transfer 50% of the amount beyond this threshold to the general reserve fund.

Under the revised rule, institutions with a post-dividend capital adequacy ratio of above 12% and an NPL ratio below 5% can distribute dividends up to 25%. Similarly:

• Those with a capital adequacy ratio between 10% and 12% and an NPL below 5% can distribute up to 20%.

• Institutions with a capital adequacy ratio between 8% and 10% and an NPL below 5% can distribute up to 15%.

However, NRB has clarified that if additional factors need to be considered beyond these two ratios, it may approve a lower dividend than the specified limit. Furthermore, microfinance institutions must maintain a minimum capital adequacy ratio of 9% to distribute cash dividends. Institutions with an NPL ratio exceeding 15% will not be allowed to distribute any dividends.