Which microfinance in which position? Find out the details

Tue, May 21, 2019 2:22 PM on Exclusive, Financial Analysis, Stock Market,

In a developing country like Nepal, where majority of population still lacks a proper access to finance, microfinance and co-operatives have been designed to fulfill the need of such population. NEPSE has 43 listed microfinance institutes. The objective of microfinance institute of the country is to provide access of finance to the bankable poor and entrepreneurial poor. However, the dark side of microfinance sector in Nepal lies on the fact that most of these remain concentrated in urban areas of the country. NRB has been encouraging microfinances to get inro merger and acquisition.
Recently (Womi Laghubitta Bittiya Sanstha Limited and Nagarik Laghubitta Bittiya Sanstha Limited), (Sadhana Laghubitta Bittiya Sanstha Limited and Aarthik Samriddhi Laghubitta Bittiya Sanstha Limited), (Kalika Laghubitta Bittiya Sanstha Limited and Jansewi Laghubitta Bittiya Sanstha Limited), (Nagbeli Laghubitta Bittiya Sanstha Limited, Mirmire Laghubitta Bittiya Sanstha Limited and Kisan Laghubitta Bittiya Sanstha Limited) signed MoU for merger.

The majority of microfinance institutes have published their third quarter report as of 2075/76 fiscal year. The overall analysis of majority of indicators such as paid up capital, reserve and surplus, net profit, earning per share (EPS), PE ratio, Net worth per share, promotes investor’s understandings on performance assessment of these microfinance units.

The further analysis focuses only on the 43 listed microfinance institutes. The non-listed microfinance institutes are not compared with the listed microfinance institutes.

 

Paid-up capital: The central bank has directed national level, regional level and district level microfinance institutes to increase their paid up capital requirement. The wholesale level microfinance should meet the paid up capital of Rs 600 million. The national level microfinance institutes should have the paid up capital of Rs 100 million, regional level microfinance of Rs 60 million and finally, district level microfinance of Rs 10 million. The microfinance institutes with highest paid up capital are:

  1. Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL) with a paid up capital worth Rs 1.20 arba
  2. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a paid up capital worth Rs 1 arba
  3. RMDC Laghubitta Bittiya Sanstha Limited (RMDC) with a paid up capital worth Rs 79.94 crore

 

Reserve and surplus: The microfinance institutes are required to serve the riskiest category of the country. So, a reserve and surplus can be useful at times of crisis. The microfinance institutes with highest amount of reserve fund are as follows:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a reserve of Rs 1.81 arba
  2. Sana Kisan Bikas Bank Limited (SKBBL) with a reserve of Rs 1.5293 arba
  3. RMDC Laghubitta Bittiya Sanstha Limited (RMDC) with a reserve of Rs 1.5287 arba

Net Profit: As of the third quarter report of FY 2075/76, the listed microfinance institutes with the highest net profit are:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with a net profit of Rs 64.30 crores
  2. Nirdhan Utthan Bank Limited (NUBL) with a net profit of Rs 52.76 crores
  3. Sana Kisan Bikas Bank Limited (SKBBL) with a net profit of Rs 34.60 crores

Net worth per share: Net worth per share is a critical tool to identify the worth of a company. The microfinance institutes with the highest net worth per share are as follows:

  1. Forward Community Microfinance Bittiya Sanstha (FOWAD) with a net worth of Rs 313.29
  2. Sana Kisan Bikas Laghubitta Bittiya Sanstha Limited (SKBBL) with a net worth of Rs 294.56
  3. RMDC Laghubitta Bittiya Sanstha Limited (RMDC) with a net worth of Rs 291.23

Earnings per share: The increment of paid up capital has influenced the EPS of majority of microfinance institutes. The microfinance institutes with highest level of EPS are:

  1. Chhimek Laghubitta Bittiya Sanstha Limited (CBBL) with an EPS of Rs 85.74
  2. Forward Community Microfinance Bittiya Sanstha (FOWAD) with an EPS of Rs 83.27.
  3. National Microfinance Bittiya Sanstha Limited (NMFBS) with an EPS of Rs 81.94

PE ratio:  The general rule of thumb in finance believes the least PE ratio is better for investors. So, following the general rule, the microfinance institutes with least PE ratio are:

  1. Grameen Bikas Laghubitta Bittiya Sanstha Limited (GBLBS) with a PE ratio of 10.58 times
  2. Chhimek Laghubitta Bittiya Sanstha Limited with a PE ratio of 10.98 times
  3. Mero Microfinance Bittiya Sanstha Limited (MERO) with PE of 13.41 times

 In a nutshell:

There are 91 licensed microfinance institutions in the country. In the near future, we can expect number of IPOs from microfinance sector.

The microfinance institutes have to face a trade off when it comes to their profitability and outreach to the bankable poor. Dear readers, do you think microfinance institutes in Nepal have the capability to develop innovative products for the bankable poor? Why do you think many people in rural areas still lack access to finance although the microfinance industry is rapidly mushrooming? Please write your opinions in the comment section below.