Nepal Rastra Bank (NRB) has barred microfinance institutions (MFIs) from charging exorbitant amounts in service charge and any other surcharges while issuing loans to their clients.
Issuing a circular to the MFIs on Sunday, the NRB reduced the maximum limit of taking service fee by the MFIs to 1.3 percent from 1.5 percent. Likewise, the central bank has also asked these ‘D’ class financial institutions not to take any other surcharges from their borrowers.
At a time when there are growing complaints that the microfinance beneficiaries are compelled to pay excessive service charges and exorbitant interest rates, the central bank has come up with the provision. Due to hefty charges being taken by the MFIs, many individuals concerned have fallen under the huge debt burden, unable to recover their financial position throughout their lifetime.
The monetary policy 2024/25 unveiled last week also talks about revising the cap on interest rate on loans issued by the MFIs. Currently, the borrowers of the MFIs are compelled to pay an interest rate as high as 15 percent per annum.
With the new NRB provision in place, a household now can receive collateral free loans up to Rs 25,000 from the MFIs under the guarantee of their family members. The threshold of getting group-based loans by deprived communities and low income individuals to operate a micro enterprise has been extended to Rs 700,000 from Rs 500,000.
Likewise, the central bank has permitted an individual to take loans from a maximum of two MFIs. The provision is applicable on both the loans that the MFI will issue on a group guarantee or collateral based credit.
In addition, the NRB has asked the loans defaulted by the borrowers based on their nature before recommending the defaulters of loans under blacklist. Separating into willful and non-willful defaulters, the NRB directed the MFIs to consider only willful defaulters for blacklisting.
The borrowers who are not in contact with the MFIs for over one year of crossing loan maturity date, who creates obstruction to take into auction the securities and who misuses the loan amounts for purposes other than specified areas fall under the category of willful defaulters. Likewise, the borrower who submits fake documents to take loans and exerts unnecessary pressure on MFIs to waive loan amount will also be considered as wilful defaulters.
