NRB updates criteria on microfinance companies for dividend distribution, nationwide operation, and shares conversion

Nepal Rastra Bank has issued a unified directive for microfinance companies.

According to the directive, microfinance companies can only distribute 30% of their distributable profit as dividends. This cash dividend percentage from paid-up capital should not exceed the weighted average interest rate for savings/deposits maintained as of Ashad 2077.

Also, if the distributable profit is less than 5% of the paid-up capital, no cash dividend can be distributed except for tax purposes.

The directive has also set the minimum paid-up capital requirement for a microfinance company to have nationwide operations. A microfinance company can have nationwide operations only if its paid-up capital is more than Rs. 10 crores. Otherwise, it can only operate in one province. Furthermore, microfinance companies with provincial operations should also have at least Rs. 2 crores paid-up capital. Additionally, microfinance companies dealing with wholesale lending should have at least Rs. 60 crores as the paid-up capital.

Microfinance companies with less than the required paid-up capital must sell, shift, or abandon their multi-provincial branches. They cannot establish new branches in their province if they have not abandoned the branches of other provinces.

Also, in order to raise the paid-up capital and reach the minimum requirement, microfinance companies should prioritize merger/acquisition. In fact, NRB will not approve of the issue of the right shares now.

Interestingly, NRB has facilitated borrowers who have taken loans from microfinance companies. According to the directive, microfinance companies should give at most 6 months of extension to borrowers depending on the harsh impact on their income source/sector, the time required for their business to be back in operation, and the borrowers' condition. No penal interest (interest on interest) can be levied during this extension period.

On a divergent note, microfinance companies can convert the promoter shares to public shares if the promoter shareholding is more than 51%. However, the promoter shareholding must be at least 51% even after conversion. To be eligible for conversion, a microfinance company must be operational for at least 10 years.

The conversion will be proportional among promoters. In case a promoter presents a self-declaration statement and wishes to keep the promoter shares, only the rest of the promoters will be given the proportional conversion choice.

Lastly, microfinance companies can have a maximum of 15% interest for their instruments. Also, microfinance companies should start reporting their upcoming base rates to Nepal Rastra Bank from Kartik.