Grameen Bikas Bank poised to get credit of Rs 50mn

KATHMANDU: 

Oct 8th 2013

The government is extending a loan of Rs 50 million to state-run Sudurpaschimanchal Grameen Bikas Bank to shore up the balance sheet of the troubled microfinance institution.

Finance minister Shanker Koirala has already taken a decision in this regard and the credit would be extended once the cabinet gives a green signal, a high-ranking official of the Finance Ministry said.

“Once the loan is extended, it would be used to provide loans to the institution’s borrowers and conduct other business operations,” the official said.

What is surprising is that the government is providing a lifeline to the institution despite the fact that it owns less than 10 per cent stake in it.

Many finance ministry officials told The Himalayan Times that they had reminded the government of this reality but they said the ministry appeared oblivious to it.

“This indicates the government is setting wrong priorities and is wasting taxpayers’ money on something worthless,” they said on condition of anonymity.

The microfinance institution, which has a paid-up capital of Rs 58.50 million, is suffering from financial problems due to mismanagement, political meddling, inability to improve compliance and inefficiency.

As of mid-June, the institution, which started its operation in June 1993, held a negative capital fund of Rs 156.27 million. Because of this, the due diligence audit of the institution completed earlier this year valued each of the company’s share at mere Rs 1.02.

The institution, which is currently operating in eight districts and has over 10,000 active members, also has an outstanding loan amount of Rs 132.67 million of which Rs 59.51 million are non-performing.

“At a time when many microfinance institutions in the country have managed to conduct business with almost zero loan default rate, accumulation of such a huge non-performing assets only indicate fiscal indiscipline at Sudurpaschimanchal Grameen Bikas Bank,” finance ministry officials said.

Earlier, it was said merger of all five grameen bikas banks, including Sudurpaschimanchal, would address many problems.

But the process is moving ahead slowly despite signing of a memorandum of understanding last November.

The government jointly with Nepal Rastra Bank had established five grameen bikas banks with the aim of extending unsecured micro loans to rural women so as to create self-employment opportunities. But of the five, only Pashchimanchal Grameen Bikas Bank has succeeded in maintaining a sound financial health.