Microfinance Not Allowed To Issue Right Share

July 29, 2020 | Investopaper

Microfinance institutions (MFIs) will not be allowed to issue right shares. Such a provision is in the directive issued by the Nepal Rastra Bank on Tuesday. This is as per the provisions announced in the monetary policy. Despite encouraging mergers and acquisitions, the MFIs were banned for right issue after it was found that they had increased the capital through rights shares.

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NRB has clarified that the amendment of the AOA and MOA will not be approved to issue right shares to the MFI with the intention of strengthening the paid up capital and ensuring reliable financial services through the process of merger and acquisition.

Limit On Loan Interest Rate At 15 Percent

Similarly, all microfinance institutions will have to reduce the interest rate on loans to a maximum of 15 percent. Previously, the limit on the loan interest rate charged by the microfinance was 18 percent. Under the previous arrangement, microfinance could add three percent to the cost of funds, while the interest spread was 6 percent. This means that an organization that has previously worked in a spread of up to 9 percent will have to reduce its interest rate by at least three percent.

Likewise, microfinance will not be allowed to charge more than 1.5 percent service fee. Earlier, they were allowed to charge up to 2 percent. No service fee will be charged from the customer for operating a savings / deposit account. Wholesale credit institutions will not be allowed to charge more than 0.50 percent service fee on loans disbursed to microfinance institutions.

Refinance Loans

Microfinance institutions also have to provide the refinance loans. There was no such provision before. As per the refinancing procedure, the MFI will receive 10 percent of the refinancing fund directly from the NRB. The same amount should be disbursed to the borrower who has met the criteria.

There is a provision that prior approval of NRB is not required to open a branch / office in a local level ward which does not have a branch of a microfinance institution. In order to open branches in local level wards where there are no branches of microfinance institutions in Kathmandu Valley, Metropolitan and Sub-Metropolitan City, prior approval of NRB will be required.

Similarly, the microfinance will have to prepare the financial statements of Ashad end, 2078 as per the Nepal Financial Report (NFRS).



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