The Nepal Rastra Bank (NRB) has stated that the status of microfinance institutions in the country was deteriorating due to their excessive focus on profitmaking, poor internal control mechanism and poor institutional governance.
Likewise, lack of training to the employees, heavy concentration of microfinance institutions on the urban areas and limited access to the rural community are identified as some of the challenges of this sector.
A study report released on Tuesday by the central bank, which formed a committee to identify issues of micro finance institutions and recommend suggestions to resolve them, stated that excessive loan to a few clients, excessive expanded system, weak institutional governance, failing credit discipline, economic slowdown and deviation from the organizational goals have created problem and pressures on the microfinance sector.
The report has offered more than 180 recommendations in 20 main themes for short-term, mid-term and long-term. The key recommendations are in the credit system, interest rate, microcredit and target community, customers protection, internal control mechanism and others.
The report has mentioned that decreasing profit and rising non-performing loans have created pressure on the microfinance institutions as the ratio of NPL has crossed 7 per cent in the last fiscal year while it used to be less than three percent in the previous years.
According to the report, presence of microfinances has centered in the comparatively developed areas having more economic activities.
The number of branches of the microfinances is high in the districts of Tarai and is low in the remote and mountainous districts. The branches of the microfinances are in all districts but their presence is not in almost 100 local levels so far.
Concentration of the microfinances based on credit, branch and other indicators is high in the districts of Bardiya, Morang, Bara, Rupandehi and few others.
As the issues regarding the microfinances were raised in the recent months and public disappointments were also expressed in some districts, the central bank had formed a seven-member study committee under the leadership of its Executive Director Dr Prakash Kumar Shrestha.
