A committee member said that the problems appear to have arisen mainly due to multiple banking by MFIs to the single borrower. “Even though many borrowers have complained about the high borrowing rate, it should not be a big issue as the MFIs cannot charge interest rates exceeding 15 percent,” the committee member said. Because of the cap imposed by the central bank, MFIs could not raise the interest rate beyond 15 percent despite the rise in the cost of funds sharply amid the liquidity crunch.
Borrowers who protested against the alleged misconduct of MFIs claimed that the institutions have been charging exorbitant interest rates, high service charges, and misbehaving with the borrowers. But promoters and high officials of MFIs have been rejecting the accusations of charging high interest rates while admitting that multiple banking transactions might have taken place. “Profit motives of many MFIs and a high target of lending assigned to the staffs might have led to multiple banking,” the committee member said. Many borrowers had managed to pay the loans in the past despite taking multiple MFIs in the past. But because of the closure of the businesses caused by the Covid-19 pandemic, they could not pay the loans immediately, but their liability continued to grow as cash flow halted due to the closure of the businesses, say officials of NRB and MFIs. With the borrowers failing to pay the loans, MFIs are being compared to loan sharks who charge very high interest rates for the money loaned informally to borrowers. With controversial businessperson and hospital owner Durga Prasain calling for physical attacks against the employees of the banks and financial institutions, a number of offices of MFIs and their staff faced physical assaults and vandalism in recent weeks.
