At a time when microfinance institutions (MFIs) are grappling with multiple problems, the surge in non-performing loans (NPL) has emerged as a major issue for MFIs.
A new report of Nepal Rastra Bank (NRB) shows NPLs of MFIs, both wholesale and retail lenders, have increased in the first half of the current fiscal year.
According to the report, the NPLs of wholesale lenders have increased to 0.87 percent while those in retail lending have seen their NPLs increase to 4.68 percent in the first six months of the current fiscal year.
The NPLs of retail MFIs have gone up by 82.62 percent during the review period while it is 112.19 percent for the wholesale MFIs.
The NPLs of four MFIs operating as wholesale lenders have reached 0.87 percent in mid-January 2023 from 0.41 percent in mid-July 2022. Similarly, NPLs of retail MFIs have reached 4.68 percent in mid-January 2023 from 2.56 percent in mid-July 2022.
Of the total 64 MFIs operating in Nepal, four are wholesale lending MFIs and the remaining are retail MFIs.
The surge in NPL, according to MFIs’ promoter is due to the non-recovery of loans. Loan recovery became complicated for MFIs as their primary lenders—micro and small enterprises— have been badly affected by the Covid-19 pandemic and the ongoing economic slowdown.
“As MFIs provided loans arbitrarily, they have struggled to recover the loans which resulted in the rise in their NPLs,” said Dr. Man BK, former secretary and a microfinance expert.
Of late, MFIs have been embroiled in controversies with issues of multiple lending, and high-handedness adopted for loan recovery. There have been cases where borrowers either committed suicide or fled from their residences after failing to pay interest and principal amounts for the money they’ve borrowed from MFIs that have been charged with using coercive measures to recover the debts.
Prakash Raj Sharma, president of the Nepal Microfinance Bankers Association said that bad loans have increased due to the recent economic recession. In addition, he said, the recent movement against microfinance and the loan non-payment campaign has also increased NPLs.
“Many borrowers of MFIs have been in a protest demanding their loans should be waived and many of them have not paid their loans,” said Sharma, “As a result, NPLs have increased.”
The number of borrowers of MFIs has decreased in the first half of the current fiscal year. The new report released by NRB on ‘Off-site Supervision Microfinance Finance’ says the number of borrowers has decreased by 43,000 in the first six months of FY 2022/23.
There were 3.3 million borrowers till mid-July 2022 which has come down to 3.26 million by mid-January 2023. According to the NRB report, the MFIs’ borrowers started to decline from the start of the current fiscal year.
While the borrowers’ number has decreased, the total number of members of the MFIs increased by 2.19 percent in the first half of FY 2022/23.
