September 23: Nepal Rastra Bank Governor, Dr Chiranjibi Nepal has hinted of not reducing spread rate of 7 percent for microfinance companies (MFs). Governor Nepal’s statement has come amid the lauding voices of MFs about the spread rate being low.

Speaking in second annual general meeting of Nepal Microfinance Bankers Association on September 22, Dr Nepal said “MFIs are meant for the services of rural public. So the companies should not be profit oriented. The five percent spread rate set for commercial and development banks is being considered high, let alone the seven percent of MFIs.”

Dr Nepal suggested MFIs to function in remote regions of the country including Kalikot, Humla, Jumla and Mugu. He said “General public in those remote areas have not yet received financial accessibility. MFs should serve in those remote areas.” He also opined of searching fundamentals to the daily increasing share price of MFs.

“MFIs extend small loans to rural people and also deals with small transactions. Thus how could a share price of such companies be so high?” he questioned. “The share price of a commercial bank having Rs 8 billion capital is at Rs 3/400, however, MFIs with a million capital has share price of Rs 4/5000. How can it be happen?” he asked. He also opined of formulating disciplinary regulation for microfinance companies to cope with increasing frauds.

In the monetary policy of FY 2073/74, NRB has directed to maintain 7 percent spread rate between the interest rate charged to the customers and the average cost of the fund maintained by the institution. However, Microfinance Bankers Association has been voicing that the microfinance companies cannot sustain on such low spread rate.

According to the Microfinance Bankers Association, the 7 percent spread rate is not practical as the companies required to recruit more employees in order to operate the companies. According to them, the companies required to recruit and deploy employees in rural areas for the management of small amounts, survey, group and centre formation, deposit collection and extension of loans.

In the program, Ram Chandra Joshi, Vice-Chairman of the Association suggested to lighten the interest rate charged by the MFIs. He also opined of stopping the practices of opening MFs haphazardly. He said “The provision of mandatory investment of 2 percent by the commercial banks to deprived community has crushed the working area of MFIs. NRB must review about the provision.”

Similarly, MFIs said that the prohibition and mandatory return of non-government organisation’s investment from MFs have also affected the organisation. The association stressed NRB to withdraw such provisions.