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NRB to revive multi-loan transactions to alleviate microfinance borrowers amid investment decline

Khabarhub

December 3, 2023

2 MIN READ

NRB to revive multi-loan transactions to alleviate microfinance borrowers amid investment decline

Nepal Rastra Bank, Baluwatar in Kathmandu/File Photo

KATHMANDU: The Nepal Rastra Bank (NRB) is set to reinvigorate the practice of individuals obtaining loans from multiple institutions, signaling a departure from the recent decline in microfinance investments attributed to the policy of restricting customers to a single institution.

This revival brings a sigh of relief to microfinance borrowers as they will once again have the option to secure loans from more than one institution, a practice that was curtailed following the central bank’s intervention in February.

The move was prompted by the discovery of a single individual obtaining loans from 23 microfinance institutions.

Before February, the NRB had granted exemptions, allowing individuals with loans from multiple institutions to repay according to the previous payment schedule.

However, the central bank introduced a provision that necessitated the last microfinance institution, exceeding the specified limit, to establish a 100 percent loan loss arrangement for the surplus amount.

Consequently, this stringent policy has led to challenges in loan collection, exacerbating the issue of high bad loans in microfinance, resulting in financial losses for many institutions.

A Source emphasized the necessity of reinstating multi-loans, citing the decline in microfinance investments due to the one-person, one-institution policy.

“The debtor faces a lack of choices, and practical issues arise when dependence is forced on a single institution, even if it does not provide satisfactory services. Hence, the reintroduction of the multi-loan arrangement is deemed necessary,” the source said.

However, the official clarified that, similar to before, an individual would not be permitted to secure loans from an excessive number of institutions, maintaining a limit to prevent potential misuse at 20-22 institutions.

“An individual will be permitted to obtain loans from two or three institutions at most,” the source stated adding that the cap for single customer loans is set at 7 lakhs.

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