Seven banks and FIs apply to open MFIs

Seven banks and financial institutions (FIs) have applied to Nepal Rastra Bank (NRB) asking the latter to allow them to open micro-finance institutions (MFIs) as their subsidiary companies. The central bank had opened door for commercial banks, development banks and finance companies to establish MFIs as their subsidiary in last August by issuing a directive.
Currently, banks have been providing wholesale loans to independent MFIs to fulfill their obligation to lend 3 percent of their total lending to rural areas under deprived sector lending. Amongst the banks and financial institutions vying to establish MFIs are Everest Bank, Laxmi Bank, Nepal Investment Bank Limited (NIBL), Prime Commercial Bank, International Leasing and Finance Company, Muktinath Development Bank and Nepal Express Finance Company.
But, NIBL's chairman and chief executive director Prithvi Bahadur Pande said his bank would have only 20-25 shares in the proposed MFI. "We are willing to support the effort of a committed group of people to open the MFI investing a portion of share so that many Nepalese can have access to finance," he said.
They will have to manage paid up capital of Rs. 100 million to open a national level MFI, Rs.60 million for regional institution and Rs. 10 million for 1-3 district MFIs as per the licensing policy of the NRB. Laxmi bank said it's paid up capital for its subsidiary MFI will be Rs. 100 million, of which 30 percent will go for the public.
Laxmi's chief executive officer (CEO) Suman Joshi said they were planning to open MFI by the end of the current fiscal year if the central bank gives approval to their proposal within a week. "Our MFI will use the latest technologies to ease the process of delivering credit facilities to rural people," Joshi said.
The banks are vying for opening subsidiary MFIs when they are refraining from going to rural regions terming the rural banking costly. "We can hire staff by offering relatively low salary and use the effective management practice of bank in running the MFI to make MFI's operation cost effective," said Joshi.
According to him, Laxmi Bank has already been running micro-credit schemes in the districts including Kavrepalanchowk, Shyangja, Kaski, Chitwan and Jhapa. Similarly, Narendra Bajracharya, chairman of Prime Commercial Bank said his bank saw opportunity in opening MFI as it will be effective tool to channalise the loans that they have to make lending under deprived sector lending. "We can help rural economy to grow by directing going to rural people," he said. "Moreover, it may also be effective tool to bring the remittance to banking system."
According to him, the Prime has been working with the district development committees to use the fund under the deprived sector loans as well as has also made wholesale lending to existing MFIs. Meanwhile, the central bank on Monday opened door for MFIs to collect deposits from individuals too in addition to from those who are in a group formed by them to address the possible resource constraints to the independent MFIs as a result of banks and FIs investing in their own subsidiary MFIs.