Proposed Micro-Finance Authority to have sweeping powers

KATHMANDU, APR 19 -

A draft of a bill regarding the formation of a Micro-Finance Authority to look after micro-finance institutions (MFIs) and cooperatives has envisioned wide powers for the regulator to enable it to discipline the institutions it will be regulating.

The bill has envisioned giving central bank-like powers to the proposed regulatory body to ensure good governance and better operation of MFIs and cooperatives.

Nepal Rastra Bank (NRB) presently monitors only a few MFIs and cooperatives and a majority of the cooperatives are not being regulated properly by the Department of Cooperatives due to its limited powers. The bill has thus proposed giving the regulator the role of an interventionist.

According to the bill which is now under discussion at the Law Ministry, the Micro-Finance Authority will issue licenses to MFIs and cooperatives by following due procedure.

The regulator can give them necessary directives on good governance and other issues. It has been given the power to notify them about wrongdoings, issue warnings in writing, seek promises, downgrade their status and prohibit them from collecting deposits and providing loans partially or fully.

If any MFI or cooperative collects deposits and provides loans against the directive of the authority, it will have the power to seize the money and impose a fine amounting to double the loan.

The bill, which was drafted by the central bank, has also given the Micro-Finance Authority power to take action against board directors of MFIs and cooperatives including notifying, suspending, fining and removing them from the board.

The proposed bill also includes a provision related to good governance which bars board directors from getting loans from the institution they have promoted. Likewise, MFIs and cooperatives cannot provide loans to firms in which their directors are a partner. They cannot invest in shares of other companies beyond the limit set by the proposed authority.

“The authority which will be chaired by the deputy governor of NRB will be a subsidiary of the central bank,” said the NRB official. The government and the central bank are expected to invest in the authority whose paid-up capital has been proposed at Rs 500 million.

Meanwhile, the draft has also categorized MFIs and cooperatives into three categories—A, B and C—on the basis of their share capital and the nature of their transactions. According to the proposed bill, the functions assigned to A and B class MFIs are almost similar while C class MFIs will have limited functions.

Among the functions A and B class MFIs and cooperatives can carry out are collecting deposits and providing credit as fixed by the authority, issue micro-credit, work as agents of micro-insurance, engage in micro-leasing business and conduct remittance transactions.

B class MFIs and cooperatives can also engage in most of these businesses while C class MFIs have been barred from receiving deposits from the public.

“They can only receive deposits from groups and provide loans to them,” said the NRB official involved in drafting the bill. The central bank has been pushing for the formation of a separate regulatory body for many years.