October 13: Microfinance companies have been more active in the process of merger and acquisition as compared to commercial banks, development banks and finance companies.

According to Nepal Rastra Bank, around two dozen microfinance companies are currently in the process of merger and acquisition. 

The central bank is currently analyzing the process of merger and acquisition of eight such companies. Swastik and Samaj Microfinance, and CYC Nepal and Shaligram Microfinance are in the process of merger. Similarly, Mirmire and Srijansheel microfinance, and Global IME Microfinance and Sparsh Microfinance are in the process of acquisitions.

Similarly, the process of merger and acquisition of eight organizations has moved forward after their analysis was completed. The microfinance companies opting for mergers include OMI and Grameen Swayamsevak Microfinance, NIC Asia Microfinance and Swadeshi Microfinance, Mahuli and Nawikaran Microfinance, and Jalpa and Mahila Samudayik Microfinance.

In addition, the central bank has given agreement in principle to 12 institutions to come for the final approval. Nepal Rastra Bank has given an agreement letter for the merger between Samata and Gharelu Microfinance. Unique Nepal and Buddhajyoti Microfinance were given the agreement letter to merge four months ago. 

Narayan Pokharel, deputy spokesperson of Nepal Rastra Bank, informed that Dhaulagiri Microfinance and Nesdo Sambridha Microfinance were given agreement letters two months ago to merge with Aandhikhola Microfinance and Nepal Agro Microfinance respectively.

A total of 207 banks and financial institutions have joined the merger/acquisition procedure as of October 11, after the central bank started the process of mergers and acquisitions between banks and financial institutions with the objective of strengthening their financial stability. Out of these, the licenses of 157 organizations have been revoked whereas 50 organizations have been established.

Some microfinance companies have also taken their steps back from the merger process. The acquisition process between Vijay Microfinance and Sweda was canceled even though they had already received an agreement letter from Nepal Rastra Bank.

Sweda has already merged with another microfinance and Vijay Microfinance has signed an agreement to acquire Khaptad Microfinance.

According to Prakash Kumar Shrestha, executive director of the Microfinance Supervision Department of Nepal Rastra Bank, says that most of the microfinance companies are in the process of merger and acquisition in order to strengthen their capital as all of them were struggling due the coronavirus pandemic. He also believes that the facility provided by the central bank to those who go for mergers and acquisitions has also encouraged them to merge/acquire.

“Coronavirus has affected the microfinance companies. Some of the organizations have chosen the path of merger and acquisition to become stronger,” he said.

The central bank has formulated a strategy to reduce the number of microfinance companies from 84 to 30. The central bank has made an arrangement to provide incentives to the merged/acquired entities by permitting them to issue their right shares.

The central bank says that the process of merger and acquisition will strengthen the paid-up capital and ensure reliable financial services.

Nepal Rastra Bank has also emphasized the microfinance companies to raise their capital. At present, there is a provision to have Rs 10 million as the paid-up capital for state-level microfinance company and Rs 100 million as the paid-up capital for national level microfinance company. Executive Director Shrestha informed that Nepal Rastra Bank is now thinking of increasing the minimum paid-up capital of microfinance institutions.