Kathmandu, Feb.
22: Microfinance Institutions (MFIs) have complained that they are experiencing
severe problems due to the shrinking spread rate due to the liquidity shortage
in the banking industry.
As the MFIs are not allowed to mobilise deposits, they have to rely
on the deprived sector lending of the commercial banks, development banks and
financial institutions.
But the recent liquidity crisis has led to increase in the interest
rates up to 14 per cent which has created problems for the class ‘D’ banks.
Following widespread complaints that the microfinance companies are
charging exorbitant interest rates up to 28 per cent, the Nepal Rastra Bank
(NRB), through the Monetary Policy 2016/17, had set the ceiling of the interest
rate for the MFIs at 18 per cent.
“The microfinance banks have just 4 per cent spread. The commercial
banks have sent us letters saying that they will charge 14 per cent interest in
the loan they provide us. It is almost difficult to meet the operational costs
in such tight spread,” President of the Nepal Microfinance Bankers’ Association
(NMBA) Ram Chandra Joshee said in a symposium of board officials of the FMIs,
Building Pathways to Strengthen the Microfinance Sector.
He said that while mobilising loans in the remote areas, the operation
cost could go up to 10 per cent.
The NRB recently set the spread of the commercial banks at 5 per
cent while the small MFIs have the spread rate less than that.
Joshee said that the liquidity crisis has redirected the small
clients of the commercial banks to the microfinance banks, but the latters
don’t have enough funds to satisfy the needs of the customers.
Deputy Governor of the NRB Shiva Raj Shrestha assured the
microfinance bankers that the liquidity crisis won’t be prolonged and the situation
would improve by April.
“The NRB is aware of your problems, and is discussing the possible
solutions. But you mustn’t be worried as the liquidity crisis will be solved
within a couple of months. If you see the trend of the past years, money comes
to the banking system by April,” he said.
According to him, it is the responsibility of the Board of Directors
to make prudent decisions and guide the organisation towards the right path
keeping intact the true essence and fundamentals of microfinance.
Saying that the new MFIs are centred in and around the cities, he
urged the MFIs to go to the areas where the banking service has not reached
yet.
Chief of the Banks and Financial Institutions Regulation Department
at the NRB Narayan Prasad Paudel said that the central bank was in
communication with the NMBA regarding the spread rate issue and would find a
solution soon.
Chairman of the Centre for Self-help Development (CSD) Shankar Man
Shrestha urged the MFIs to follow the prudence practices.
“We need to stay rooted to the fundamentals of microfinance and stop
actions that jeopardise the well being of clients and long term sustainability
of organisations and harm the reputation of microfinance,” he said.
The two-day symposium is organised by the CSD in cooperation with
the NMBA. It will conclude on Friday.
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