Microfinance borrowers find it hard to repay loans

Kathmandu, Oct. 8

The coronavirus pandemic has reduced the loan repayment capacity of the customers of the microfinance institutions.

About 90 per cent clients of the microfinance institutions in the urban area faced difficulty in their loan repayment in the wake of coronavirus outbreak and subsequent lockdowns and restrictions, concluded a study carried out by the Centre for Microfinance (CMF).

The preliminary findings and recommendations of the study 'COVID-19 effects/impacts on microfinance sector in Nepal' has found that about 69 per cent clients experienced severe difficulty in their loan repayment while 21 per cent faced partial difficulty.

However, the number of clients experiencing the challenges in repayment is slightly less in the rural areas as 13.5 per cent did not face any difficulty against 10 per cent of the urbanites.

In the villages, 64 per cent clients found it hard to repay their loan to the microfinance while 23.5 experienced some difficulty.

Meanwhile, the withdrawal of the savings went up as high as 80 per cent of the normal times.

About 47 per cent of the microfinance institutions (MFIs) reported that savings withdrawal had increased after the pandemic hit the nation while 5 per cent of them found it was difficult to manage the increased rate of withdrawals.

The study found that only 16 per cent of the MFIs contracted with lender provisions for emergency, 58 per cent did not and 21 per cent did not confirm.

In the first month of the lockdown, the MFIs announced 10 per cent interest discount, offered grace period of 3-6 months, 1-year term extension, 6-24 months of rescheduling and 100 per cent penalty discount if interest of 6 months paid. However, they couldn't get the discount on interest from the banks as announced by the Nepal Rastra Bank.

About 79 per cent companies got no information on gender of domestic violence, and a few noticed it during the lockdowns while the clients were worried about the adverse impact on the budget of households.

"They were worried about the increased credit burden, increasing unemployment, business collapse, child schooling and religious participation. Fear of sickness or death due to COVID-19 and other diseases and suspecting others were also the impacts of the coronavirus," concluded the report.

Similarly, 10.6 per cent branches of the MFIs were fully closed during the lockdown while 89.4 per cent were partially closed.

Many wage earners, auto rickshaw and industry workers lost their jobs and survival was difficult for them. Hotel and transport businesses were shut while agriculture dependent clients faced difficulty in obtaining input and marketing the output.

The study was conducted between mid-April to mid-May 2020 and 25 per cent of MFIs were covered in it.

Published in The Rising Nepal daily on 9 October 2020.