Minimum Interest Rate of Microfinance Companies Reaches Upper Limit at 15 Percent

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Minimum Interest Rate of Microfinance Companies Reaches Upper Limit at 15 Percent

July 1: The minimum interest rate of microfinance companies providing financial services to the poor and needy has reached 15 per cent. Stating that the cost has gone up due to the liquidity crisis in the market, the microfinance companies have raised the interest rate to the maximum limit set by Nepal Rastra Bank (NRB).

NRB has set a limit that microfinance cannot charge more than 15 per cent interest since last year. With the rise of interest rates of banks and financial institutions, microfinance companies have increased the minimum interest rate to the upper limit.

A report on interest rates of microfinance companies published by NRB states that the interest rate of 35 out of 61 microfinance companies has reached 15 per cent. Apart from this, the minimum interest rate of most of the microfinances is above 10 per cent.

Banks and financial institutions have been disbursing loans to the poor through microfinance companies.

Chairman of the Nepal Microfinance Bankers' Association, Prakash Raj Sharma, said that it was difficult to work within the limits set by the NRB as the interest rate of the banks itself has increased to 15 per cent. "Right now, the interest rate on bank loans has reached 15 per cent," he said.

Stating that capital should be available to microfinance institutions at cheap interest rates, the association has submitted a demand letter to the NRB to make arrangements to add only a per cent premium to the base rate when giving loans to banks and financial institutions to the poor.

According to the NRB, there are currently 65 microfinance companies operating in the country with four of them providing wholesale loans and 61 giving out loans in retail. These organizations have formed 1.329 million groups and provided financial services to 57.72 million people. Loans and borrowings of microfinance institutions increased by 23.53 per cent compared to July 2021 and reached Rs 392.05 billion in mid-April 2022.

About half of the total loans disbursed by the microfinance companies have flowed into the agriculture sector. Out of the total loan disbursed by microfinance companies, 46.02 per cent has gone to the agriculture sector till April 2022. The share of the credit of this sector was 44.82 per cent in July 2021.

Similarly, microfinance companies have disbursed 3.41 per cent in cottage and small-scale industries and 30.89 per cent in the service sector.

The investment of microfinance companies has declined due to a lack of liquidity in the banking system.


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