Microfinance companies agree to return Rs. 1.6 billion raised as fees from clients

Kathmandu, Feb. 15

The microfinance companies have agreed to return Rs. 1.60 billion which they raised in addition to the service charges to the customers, the Ministry of Finance (MoF) informed on Wednesday.

A meeting of Deputy Prime Minister and Minister for Finance, Bishnu Prasad Paudel, Deputy Governor of Nepal Rastra Bank (NRB), Bam Bahadur Mishra, President of Nepal Microfinance Backers Association, Prakash Raj Sharma, and representatives of other concerned agencies held at the MoF at Singha Durbar has also agreed that microfinance will not charge more than 1.5 per cent service fee per year.

Secretary at the MoF, Toyam Raya, Executive Director of NRB, Dr. Prakash Kumar Shrestha, Chief of Financial Sector Management and Corporation Coordination Division at the MoF, Jhakka Prasad Acharya, and President of Microfinance Association of Nepal, Jagat Pokharel, were also present at the meeting.

Similarly, it has been agreed that the provision that one customer cannot take loans from more than one microfinance institution would be implemented effectively.

According to a microfinance banker, the amount which was agreed to be refunded is almost one-fifth of the total service fee the microfinance institutions (MFIs) raise in a year.

Sharma said that the meeting discussed the contemporary issues of the microfinance sector and agreement was made to refund the additional service fee to the concerned customers of the respective MFI within a week. However, the agreement was not something fresh, it is just a preponement of the decision of the MFIs to return the money within a couple of weeks after the annual general meeting of the respective companies.

"Microfinance banks were ready to refund the additional fees but the meeting today agreed to give away the money immediately," Sharma said to The Rising Nepal.

However, MFIs said that the situation arose due to the gap in understanding about the pre-matured loan. Stating that they were not against the central bank's directives, a microfinance banker said that there were different explanations about the service fee.

"MFIs are charging 1.5 per cent service fee when a creditor clears his/her loan earlier than the maturity date. However, the NRB maintains that the MFIs can't charge additional 1.5 per cent annual fee if the loan is repaid and another loan is obtained at the same time," he said.

However, he maintained that a few microfinance companies have made it their strategy to motivate their clients to clear loan in 3-5 months and obtain another loan which means 1.5 per cent more income from loan servicing. There are customers who want to clear the remaining portion of loan and obtain a larger amount for business and other purposes.

Spokesperson of the NRB, Dr. Gunakar Bhatta, also said that the government and the central bank had taken the steps to address that particular practice.

Likewise, the meeting also agreed upon preparing the details of the customers who are unable to pay their loans due to various reasons within one month and to utilise the money from customer protection fund to support such customers.

DPM Paudel instructed the NRB to study and submit a report on the contributions made by the MFIs in the economy, employment, tax, financial literacy and social sectors. He also directed the central bank to solve the problems in microfinance sector.

Published in The Rising Nepal daily on 16 February 2023.