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.

Microfinance institutions flush with profits

KATHMANDU, JUNE 07, 2013

Microfinance institutions are raking in profits amidst the growing concern over the massive lending rate being charged on borrowers.

Microfinance development banks have earned 21 per cent more profit than a year ago. The class ‘D’ financial institutions earned Rs 33.26 billion as net profit in the third quarter of the current fiscal year.

In the third quarter of last fiscal year, they had earned profits worth Rs 27 billion.

Likewise, according to the seven microfinance development banks that are listed at Nepal Stock Exchange among the 28 in operation, these

class ‘D’ development banks have increased their profit by 27 per cent.

They earned Rs 244.2 million by mid-April, 2013, against Rs 191 million earned in the corresponding period a year back.

The ever growing profits of the microfinance institutions and generous dividend payouts have made them popular stocks to be traded at the stock exchange. From last fiscal year’s profit, their average dividend distribution stood at 25 per cent of the paid up capital.

However, of late, many feel that the concentration of microfinance institutions on profits is at the expense of the rural populace who are their borrowers.

The central bank licensed microfinance banks and institutions charge lending rates as high as 20 per cent to 25 per cent from borrowers which is almost 10 percentage points higher than the rate charged by commercial banks for deprived sector loans that are similar to micro credit.

Meanwhile, Nepal Rastra Bank (NRB) is gearing up to monitor the interest rates being charged by microfinance institutions. “We have also realised that the current rate of interest being charged for micro loans by microfinance banks are not sustainable, both for the borrower and the banks in the long run,” said spokesperson of NRB Bhaskar Mani Gyanwali.

“However, it is against the principle of the central bank to directly regulate the interest of any financial institution, but we will keep a close watch on the institutions,” Gyanwali said, adding that intervention will be undertaken if the microfinance institutions are unnecessary burdening clients for profit.

Moreover, financial institutions that are obliged to fulfil deprived sector lending requirement by the central bank opt to lend the amount to wholesale microfinance lenders at interest rates of between seven per cent to 10 per cent. The wholesale lenders then lend to individual micro credit institutions who then give the money to clients that consist mainly of poor people who reside in rural areas.

However, microfinance bankers are of the view that the interest rates being charged is in accordance with the cost of microfinancing. “The cost of going to the field, organising groups, providing focus groups with skill based training and then lending them money without any collateral is not something commercial banks are up to,” said a chairman of a microcredit bank.

“Microfinance is a business albeit a social one, and investors also expect returns, so it is not wrong if we make good money. Ultimately, if we are able to earn better then we will be able to provide better services to beneficiaries,” added the microfinance banker.

Despite the obvious benefits of microcredit in supporting the poor and ultra poor population and in creating social awareness, the growing concentration in limited areas and multiple lending to the same client has raised an alarm within the microfinance community as well.

Source: THT

Finance companies propose MFDB

KATHMANDU, OCT 1: 

Nepal Finance Companies Association has proposed a Rs 200 million to Rs 250 million worth Microfinance Development Bank (MFDB) that will not only help deprived borrowers get access to finance, but which will also provide technical consultation and orientation programmes, coupled with project financing for returnee migrants.

“Central bank is positive about the proposal,” said

the association’s president Rajendra Shakya, after discussions with central bank officials today.

However, Nepal Finance Companies Association is only a facilitator, he said, adding that the association has proposed a 60 per cent equity participant from commercial banks, development banks and finance companies. “Experts and technicians can also have a 10 percent equity partnership in the proposed Microfinance Development Bank that will provide both wholesale and retail lending,” added Shakya.

“Concentration of the proposed institution will be on livestock, animal husbandry and dairy, as demand for farm, livestock and dairy products has been rising lately but the country has to import most products.”

Central bank governor Dr Yubaraj Khatiwada is also enthusiastic on the proposed institution as the central bank has been encouraging banks and finance companies to go to rural areas to help in agriculture and livestock, he said, adding central bank has to, however, bring in project finance, as it currently has no such provision.

Source: THT