12th November 2024, Kathmandu
Nepal’s Central Bank, Nepal Rastra Bank (NRB), has issued a new directive aimed at diversifying credit distribution to the impoverished. The directive limits the amount of bulk loans that banks and financial institutions can lend to any single microfinance institution (MFI) to a maximum of 40% of their total bulk loan portfolio.
Nepal Rastra Bank’s Microfinance Policy
This move is intended to reduce risk and ensure a wider distribution of credit.
Furthermore, the NRB has mandated that financial institutions allocate at least 5% of their total lending portfolio to impoverished sectors. This can be done either directly by the banks or indirectly through MFIs.
As of mid-2024, 52 MFIs are operating in Nepal, with three exclusively focused on bulk microfinance loans and 49 providing retail loans. The number of clients in these institutions reached 5.995 million, including 2.964 million loan recipients. However, both the number of members and loan recipients have decreased compared to the previous year.
To address concerns within the microfinance sector, the NRB had previously implemented regulations limiting borrowers to one MFI at a time and prohibiting them from borrowing from banks or other financial institutions. These regulations have been slightly relaxed, allowing individuals to borrow from up to two MFIs, but the restriction on bank borrowers remains in place.
The diversification policy aims to ensure a wider distribution of microfinance loans across various sectors and institutions, reducing risk and expanding access to financial services for the impoverished population.
For more: Nepal Rastra Bank’s Microfinance Policy
