June 2: Market price of Microfinance (MFs) shares has declined in the secondary market. Earlier, the market price of MFs shares had surged tremendously with the rumours that Nepal Rastra Bank (NRB) will soon bring paid-up capital increment directive for MFs by 4 folds.  However, news is circulating in the market that NRB has declined the idea to increase paid-up capital of MFs attributing the fall in market price. Although, monetary policy of current FY has declared of increasing MFs paid-up capital, NRB has not given solid directive on how much of paid-up capital to be increase till date.

The sales pressure on MFs share has increased with the news circulation that in the upcoming monetary policy, NRB is directing MFs to increase paid-up capital by merely 2 folds. “The investors had held big quantity of MFs shares in expectation of 4 folds capital increment in order to get bonus shares and right shares. But as it is not happening soon, the investors have started to sell their holdings that have decreased price of MFs shares due to high supply,” says share brokers.

Previously also, board of directors (BOD) of NRB, citing inappropriate, had showed reluctance in taking decision on paid-up capital increment. In the other hand, Nepal Microfinance Bankers Associations has also suggested to increase paid-up capital by only 2.5 folds. According to them, it will be problematic to increase paid-up capital by 4 folds to all microfinance.

However, as the announcement on paid-up capital increment is made in monetary policy by NRB, it cannot decline the procedure. Thus, as per the NRB source, it has pressure of directing MFs to increase paid-up capital by at least 2 folds. Although, as the NRB BOD will take the final decision, analysts say that prediction cannot be made on what kind of directive or how much increment will be made.

Presently, paid-up capital requirement for national level MFs is Rs 100 million, regional level is Rs 60 million, MFs operating in 4-10 districts is Rs 20 million and MFs operating in 1-3 districts is Rs 10 million.

Effects of 2 fold increment

If NRB directs MFs to increase paid-up capital by 2 folds, as per the statistics till mid-March, 26 MFs will have to increase their paid-up capital. As few of them have not issued general shares till date, they will have to issue initial public offering (IPO) as alternative of paid-up capital increment.