Number of microfinance likely to reach 113 in near future

Kathmandu, Mar. 21

The number of microfinance institutions in the country is likely to reach 113 in the near future.

Against its reiterated rhetoric that no licenses would be issued to the microfinance institutions (MFIs), or class 'D' banks, as the country needed no more MFIs except in some remote districts, the Nepal Rastra Bank has been awarding licenses to new companies.

In the past one-and-a-half years, 16 new microfinance companies have obtained license from the central bank.

According to NRB statistics, the number of MFIs in July 2016 was 42, which reached 58 in January this year.

However, central bank spokesperson Narayan Prasad Poudel said that the total number of class 'D' banks has reached 60, and the Letter of Intent (LoI) has been granted to an additional five companies, which means the number of such banks will reach 65 within a couple of months.

He stated that the NRB had kept its no-licensing policy but was liable to allow those companies which had completed the 'fit and proper test'.

"Currently, 12 companies that applied for the MFI license have completed their 'fit and proper' test while nine others are in the process. Similarly, the central bank is processing three applications of MFIs being opened in the remote districts," he said.

Apart from those 24 applications, the central bank is converting 24 FINGOs (Financial Intermediary Non-Government Organisations) into microfinance companies.

The NRB said that the process of all these companies has moved ahead, and it’s considering to award licenses to all of them.

But the existing microfinance companies have criticised the NRB's move to add more class 'D' banks as this would increase the chances of client duplication and unhealthy practices as well as resource crunch for the companies since they have to primarily rely on deprived sector lending of the commercial and development banks and finance companies.

The NRB, through the Monetary Policy for 2017/18, had set a ceiling of deprived sector lending for the commercial banks, development banks and finance companies at 5 per cent, 4.5 per cent and 4 per cent respectively.

The Nepal Microfinance Banker Association (NMBA) said that microfinance in Nepal had reached a suffocating stage, and additional companies would pose a serious challenge for monitoring and supervision.

It is interesting to note that in the past one-and-a-half years, the number of large commercial bank has remained static at 28 while the number of class 'B' development banks and class 'C' finance companies has gone down dramatically due to mergers and acquisitions, mostly forced by the NRB's new paid up capital provision of Rs. 8 billion.

The number of development banks and finance companies has shrunk to 36 from 67 and 25 from 42 respectively. Currently, there are 181 banks and financial institutions (BFIs) in the country.

Number of BFIs and branches

BFIs	Number of BFIs		Number of Branches
	2016 July	2018 Jan.	2016 July	2018 Jan.
Commercial Banks	28	28	1869	2462
Development Banks	67	36	852	846
Finance Companies	42	25	175	163
Microfinance Companies	42	58	1376	2121
Total	179	147	4272	5592

Source: Nepal Rastra Bank

Published in The Rising Nepal daily on 22 March 2017.