NRB Bars MFIs with Over 15% Bad Loans from Distributing Dividends

Nepal Rastra Bank (NRB) has barred microfinance institutions (MFIs) with a non-performing loan (NPL) ratio above 15 percent from distributing dividends. The central bank introduced the provision through an amendment to its Unified Directive issued on Sunday. Under the new rule, MFIs can distribute dividends of up to 25 percent based on their capital adequacy ratio and NPL levels.

According to the directive, MFIs must maintain a minimum capital adequacy ratio of 9 percent to qualify for dividend distribution. Institutions with an NPL ratio exceeding 15 percent are not allowed to distribute any dividends. NRB has categorized dividend limits based on financial indicators. MFIs with NPL below 5 percent and capital adequacy above 12 percent can distribute up to 25 percent dividend, while those with capital adequacy between 8–10 percent and NPL between 10–15 percent can distribute up to 5 percent. Institutions failing to maintain the minimum paid-up capital can distribute only bonus shares, though they may provide cash dividends for tax purposes.

The central bank has also scrapped previous rules that required MFIs to allocate additional funds to reserve, client protection, and corporate social responsibility funds when distributing dividends above 15 percent.

NRB also introduced new lending provisions through the same directive. MFIs can now provide loans of up to Rs 300,000 per person for individuals seeking foreign employment and Rs 500,000 for women, with or without collateral. Banks can restructure or reschedule loans of real estate and housing companies that have paid 10 percent of the interest and obtained approval from the government-registered agency. These adjustments must be completed by mid-October 2025, while loan classification should remain at least the same as on mid-April 2025.

The directive also allows banks to provide agricultural and business loans of up to Rs 1 million by self-assessing collateral on agricultural land, crops, or related structures without charging valuation fees. Banks are instructed to align repayment schedules with crop production and harvest cycles. Concessional rates are allowed for loans to advanced crop varieties recommended by the Nepal Agricultural Research Council (NARC), with interest rates capped at the base rate plus 1.5 percent. Banks can also finance productive industries up to Rs 30 million along the postal and mid-hill highways, and provide loans to hotels and restaurants holding “green stickers” for food safety compliance at base rate plus 2 percent. Such loans can be counted toward the SME category.