FM Khatiwada for converting microfinance into development banks

Kathmandu, July 16

Finance Minister Dr. Yuba Raj Khatiwada has pointed towards the possibility of merging the microfinance companies and developing them into larger and powerful development banks.

"The rate of poverty is going down significantly and in the next five years absolute poverty would be alleviated. As the microfinance companies are established to help in poverty reduction, they will have no business," he said while speaking at the handover ceremony of the Rural Self-Reliance Fund (RSRF) to the Sana Kisan Bikas Laghubitta Bittya Sanstha Limited, a microfinance company formerly known as Small Farmers Development Bank Limited at the Ministry of Finance (MoF).

There is a paradox – the size of poor population is decreasing while the number of microfinance banks is increasing, which is expected to cross 100 in the future as the Nepal Rastra Bank (NRB) has converted the non-profit Financial Intermediary Non-Government Organisations (FINGOS) to the profit-oriented class 'D' microfinance banks.

Therefore, in the long-run, the microfinance companies will be developed as the class 'B' development banks, said Dr. Khatiwada.

He also directed the Sana Kisan Microfinance to expand its outreach in the local units where there is poor access to finance. "Create collaboration with the cooperatives. You should also submit an assessment report of the company to enhance the institutional capacity," asked the Finance Minister.

According to him, the Rs. 1 billion RSRF run by the central bank so far was consolidated with the government-run microfinance to save the NRB from the conflict of interest as it was engaged in the operation and supervision of the fund.

Likewise, the jurisdiction of the central bank has increased significantly with the expansion of the economy and the number of branches of the banks and financial institutions have been doubled in the last couple of years. The number of branches have reached 732 now from 350 two years ago.

Governor of the central bank Dr. Chiranjibi Nepal said that it was a right step to separate operation and regulation from the NRB's responsibility.

"Sana Kisan Microfinance is serving about 63,000 families with Rs. 6 billion loan mobilisation and the transfer of Rs. 1 billion fund would help it in expanding the business and increasing the capacity," he said.

The government had announced in the budget of the Fiscal Year 2018/19 that the government funds established for employment promotion and entrepreneurship development would be consolidated. The provision has realised in the last day of the fiscal.

Sana Kisan was established in 2001 to provide wholesale credit along with the technical support services mainly to the Small Farmers Agriculture Cooperatives and similar types.  With its conversion to the microfinance company, it has started providing wholesale credit to other cooperatives and microfinance institutions.

Similarly, the RSRF was instituted in 1991 by the NRB for poverty reduction where the government and the central bank contributed Rs. 540 million and Rs. 25.34 billion respectively. It used to provide wholesale credit to the cooperatives and the NGOs at subsidised rate of interest to on-lend to the poor.

Published in The Rising Nepal daily 17 July 2019.