NRB Restricts Microfinance Companies While Distributing Dividends By Amending Integrated Instruction; What are the Other Restrictions?

The following changes have been made by Nepal Rastra Bank (NRB) under the authority granted by section 79 of the Nepal Rastra Bank Act, 2058, in accordance with the Integrated Instruction, 2078, issued by NRB to the licensed Microfinance Financial Institutions of the "D" category.

• Dispositions pertaining to dividuend distribution: If a dividend (cash or bonus) distribution of more than 15% is proposed each year, 50% of the proposed dividend should be placed in the general reserve fund.

• In relation to corporate social responsibility: Microfinance companies should set aside at least 1 percent of the annual net profit for corporate social responsibility. The fund should be deposited in the liability fund. In addition, if a dividend (cash or bonus) of more than 15 percent is proposed to be distributed annually, the amount of 10 percent of the proposed dividend above 15 percent must be deposited in the Institutional Social Responsibility Fund. Arrangements should be made to spend the amount accumulated in that fund in the following financial year.

• Regarding the interest rate of deposits/ savings: the minimum interest rate of deposits/ savings should be set at least 50 percent of the maximum interest rate of the loan provided by microfinance financial institutions. (50% of 15% means the deposit interest rate will be 7.5%)

• Within a month of starting work at the bank, freshly hired employees should receive at least two weeks of orientation training in order to develop skilled manpower within the company. The organization's website must be updated every six months with the title, date, length, list of the workers who received the training, and other information.

• Microfinance women cannot take loans from the second microfinance except one microfinance and they can take a maximum of seven lakhs (previously this limit was 15 lakhs).

• If A, B, C financial institutions have taken a loan from any institution, they cannot take a loan from microfinance.

• A microfinance company can provide loans to only one member.

• D class microfinance institutions cannot provide loans to borrowers who have been provided loans by A, B and C class financial institutions and the maximum limit of mortgage or unsecured loan will be up to 7 lakh only.

• Also, from the 15% of net profit, 5% should be allocated to general reserve, 35% to client protection fund and 10% to corporate social fund.