Serve rural areas or lose license, NRB Guv tells microfinance institutions

Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal has warned that the central bank may scrap the license of microfinance institutions who fail to reach rural areas of the country. Addressing the inaugural session of a two-day National Microfinance Members' Summit that kicked off in Kathmandu on Sunday, Governor Nepal urged the microfinance institutions to focus their services in villages. "There are people in the villages willing to embrace entrepreneurship. They have the capacity to run enterprises. You should finance them. You should go to the villages," Nepal added. The statement of the central bank governor has come in the wake of growing complaints that the microfinance institutions, which were licensed to provide their services in certain areas of the country, are centered in convenient and urban areas. Governor Nepal also urged the microfinance institutions to reduce their interest rates that they offer to their borrowers. Contending that the microfinance institution is also a social service, he called for the microfinance institutions to provide cheaper loans to the people of rural areas. While microfinance institutions have been helping to increase people's access to finance, many also criticize this type of lenders for charging 'exorbitant' interest rates by borrowing at cheaper cost from commercial banks and development banks. Though interest rates of commercial banks have fallen to ultra-low levels, microfinance institutions continue to charge as high as 23 percent. The central bank governor also pointed out the problem of multiple borrowing in microfinance sector. "It should extend credit to the people who otherwise do not have access to banking services. However, there are problem of multiple borrowing which should make the microfinance institution cautious," he added. A total of 41 microfinance institutions, 25 financial intermediary non-governmental organization and nearly 100 cooperatives are providing microfinance services to nearly 1.8 million people in 75 districts. These institutions have floated a total of Rs 300 billion in loans which have a recovery rate of nearly 99 percent, according to a statement issued by the organizers of the summit. The summit is being organized by various microfinance institutions in coordination with Center for Social Development. The summit has brought together a total of 700 participants including 600 women beneficiaries of microfinance institutions. According to the organizers, the summit will provide an opportunity to the beneficiaries of microfinance institutions to share their stories on how the microfinance institutions have helped them in promoting entrepreneurship. Also speaking at the summit, Prime Minister KP Sharma Oli also said that the microfinance institutions should bring their interest rates down. "The interest rates that they are offering are low compared to what their peers in other countries charge. Yet, the interest rates are high in the context of Nepal," he said, lauding the roles of the microfinance institutions in alleviating poverty. Source: Republica