MFIs demand central reporting system

Kathmandu, Feb. 9: Microfinance bankers Thursday stressed on the need of establishing a central reporting system to keep track of their customers in order to address the problem of duplication that had become acute over the years.

 In the absence of such a mechanism, a single customer has sourced fundings from multiple banks, which has resulted in very big debts on the part of the customer while the financial institutions have been losing money.

“A mechanism to track the lending of microfinance institutions is the need of the day. There are cases of about a dozen microfinance institutions (MFIs) lending to a single customer without assessing his repayment capacity,” said Shankar Man Shrestha, chairman of the Centre for Self-help Development (CSD).

But the problems were created by the microfinance institutions themselves as they went beyond the norms of microfinance, Shrestha said while speaking at a seminar on ‘Learning from the Grameen Financial System’ which was jointly organised by the CSD and Grameen Trust, Bangladesh.

Currently there are 50 MFIs and 25 financial intermediary non-government organisations (FINGOs) while about 107 applications demanding license to run MFIs are pending at the central bank, Nepal Rastra Bank (NRB).

According to the bankers, the swelling number of MFIs would further worsen the situation as the banks are now focused on garnering more profit than working as per the fundamental norms of microfinance, i.e., supporting the poor to come out from the poverty.

“Customer duplication has been a major problem of the MFIs for many years now, while more companies are entering the sector in search of profits, which will fuel the problem further. A central reporting system helps to discourage the duplication,” said Basanta Lamsal, chief executive officer (CEO) of Vijaya Laghubitta Microfinance Bank.

People have fled their homes after being unable to repay the loans of multiple banks, he said.

A 16-year-old girl committed suicide when the MFIs continuously ‘tortured’ her into repaying the loan taken by her mother, who had eloped leaving her alone.

CEO of Laxmi Laghubitta Bittiya Sanstha Prakash Raj Sharma said that although the MFIs had recommended to the NRB not to allow more than three microfinance banks in a village, it had fallen on deaf ears.

He said that the banks would definitely seek profit as it was no longer a charity after the central bank started to license them as profit-making institutions.

MFIs need to register at the Company Registrar’s Office.

Dilip Kumar Pokharel, CEO of Grameen Swayamsewak Samaj, a FINGO, attributed the misconduct to the old MFIs.

“Instead of following the norms of microfinance and showing a better path to the new institutions, the old MFIs followed the way of profit making. As MFIs distributed up to 100 per cent dividend, more people were attracted to this sector,” he said.

According to Pokharel, the board of directors of the MFIs keeps putting pressure on the CEO to earn more profit, and seldom care about working for a social cause.

The MFIs and FINGOs are serving 2,437,000 customers through 1,541 branches.

They have mobilised loans of Rs. 75 billion.