Top 5 Microfinance of Nepal: Comparative Study

August 24, 2020 | Investopaper

In this study, we will take 5 top retail microfinance of Nepal based on their performance in the fiscal year 2076/77. We have selected the microfinance companies on the basis of the volume of business they have generated. Here, we have chosen only those microfinance listed in Nepal Stock Exchange. The microfinance include (based on the current paid-up capital):

1. Nirdhan Utthan Laghubitta

2. Chhimek Laghubitta

3. Deprosc Laghubitta

4. Swabalamban Laghubitta 

5. Forward Community Laghubitta

Note: Click on the links above to see the individual performance in the FY 2076/77

Here, we will try to make the financial comparison of these microfinance companies based on the following indicators.

Paid Up Capital

Paid-Up Capital is the amount of money which the shareholders have put in the company. Higher capital signifies strong financial condition as it can be useful for shock absorption during any unexpected setbacks and downturn.

Among these microfinance, Chhimek Laghubitta and Nirdhan Utthan Laghubitta have a paid-up capital of Rs 150 crores. Likewise, Deprosc Laghubitta’s capital stood at Rs 100.54 crores. Swabalamban Laghubitta and Forward Laghubitta have a lower capital of Rs 79.24 crores and Rs 50.04 crores respectively.

The paid-up capital of the five microfinance are shown in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 150 118 27.12
2 Nirdhan Utthan Laghubitta 150 120 25
3 Deprosc Laghubitta 100.54 77.34 30
4 Swabalamban Laghubitta 79.24 62.89 26
5 Forward Community Laghubitta 50.04 50.04 0

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Related: Top 7 Non-Life Insurance in Nepal

Reserve & Surplus

Reserve and Surplus is the amount accumulated from the profit of the company since its inception. It includes reserve kept for specific purposes and the retained earnings not distributed to the shareholders. Higher reserve and surplus indicates greater financial strength of the company.

Nirdhan Utthan Laghubitta has the highest reserve and surplus of Rs 18.02 crores followed by Chhimek Laghubitta with Rs 169.45 crores. On the other hand, Deprosc Laghubitta has the lowest reserve among the five with Rs 83.31 crores.

The table below presents the reserve and surplus of the five microfinance companies:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Nirdhan Utthan Laghubitta 185.02 162.21 14.06
2 Chhimek  Laghubitta 169.45 163.91 3.38
3 Swabalamban Laghubitta 136.25 112.5 21.11
4 Forward Community Laghubitta 92.43 76.46 20.89
5 Deprosc Laghubitta 83.31 78.28 6.43

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Related: Comparative Study of 4 Wholesale Microfinance in Nepal

Borrowings

Microfinance companies generally borrow funds from commercial/development banks and provide them to the economically deprived people. Until Ashad end 2077, Nirdhan Utthan Laghubitta has the borrowing of Rs 6.95 Arba followed by Deprosc Laghubitta with Rs 6.51 Arba. Chhimek Laghubitta has the lowest borrowing of Rs 4.07 Arba.

The borrowings by the five microfinance companies is shown in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Nirdhan Utthan Laghubitta 6.95 7.69 -9.62
2 Deprosc Laghubitta 6.51 6.78 -3.98
3 Forward Community Laghubitta 5.95 5 19.00
4 Swabalamban Laghubitta 4.76 5.8 -17.93
5 Chhimek  Laghubitta 4.07 4.48 -9.15

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Related: Merger/Acquisition Of Microfinance Companies In Nepal

Deposits

Retail Microfinance also collect deposits from its members similar to other BFIs. Until end of Ashad 2077, Chhimek Laghubitta has collected such deposits of Rs 18.67 Arba. Nirdhan Utthan Laghubitta is second with Rs 13.34 Arba deposit collection. On the other hand, Deprosc Laghubitta has the lowest deposits of Rs 4.94 Arba.

The table below shows the deposits by the five microfinance companies.

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 18.67 15.39 21.31
2 Nirdhan Utthan Laghubitta 13.34 11.05 20.72
3 Swabalamban Laghubitta 9.29 7.49 24.03
4 Forward Community Laghubitta 5.61 4.62 21.43
5 Deprosc Laghubitta 4.94 3.82 29.32

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

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Loans & Advances

The major objective of the microfinance companies is to provide funds to the low income people. With or without collateral, these companies float loans to those people deprived of financial support. Based on the total loans and advances, Nirdhan Utthan Laghubitta is ahead of others with Rs 20.15 Arba. Similarly, Chhimek Laghubitta has floated total loans of Rs 19.37 Arba. Deprosc Laghubitta, on the other hand, has the lowest loans of Rs 11.55 crores.

The loans and advances provided by these microfinance is presented in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Nirdhan Utthan Laghubitta 20.15 19.64 2.60
2 Chhimek  Laghubitta 19.37 19.76 -1.97
3 Swabalamban Laghubitta 15.21 14.4 5.63
4 Forward Community Laghubitta 11.68 10.07 15.99
5 Deprosc Laghubitta 11.55 11.97 -3.51

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Also Read: Deposits And Loans Of Commercial Banks In Nepal

Net Interest Income

The major source of income for the microfinance companies is the net interest income. It is the difference between the interest income from loans and interest expenses on deposits and borrowings. In the fiscal year 2076/77, Chhimek Laghubitta generated highest net interest income of Rs 175.38 crores followed by Nirdhan Utthan Laghubitta with RS 149.32 crores. Forward Community Laghubitta has earned a net interest income of Rs 73.52 crores.

The table below shows the net interest income earned by the five microfinance companies.

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 175.38 172.35 1.76
2 Nirdhan Utthan Laghubitta 149.32 157.93 -5.45
3 Swabalamban Laghubitta 125.48 106.57 17.74
4 Deprosc Laghubitta 95.97 91.61 4.76
5 Forward Community Laghubitta 73.52 75.07 -2.06

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Operating Profit

Operating Profit is the profit from the business operation before the deduction of interest, writeback, bonus and taxes. In the fiscal year 2076/77, all the five companies have reported substantial drop in operating profit. Chhimek Laghubitta earned an operating profit of Rs 87.07 crores followed by Rs 56.54 crores for Swabalamban Laghubitta. Deprosc Laghubitta generated an operating loss of Rs 72.14 crores due to the huge provision for the possible losses.

The operating profit earned by these microfinance is also presented in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 87.07 142.79 -39.02
2 Swabalamban Laghubitta 56.54 66.29 -14.71
3 Nirdhan Utthan Laghubitta 44.71 114.62 -60.99
4 Forward Community Laghubitta 39.45 47.69 -17.28
5 Deprosc Laghubitta -72.14 53.79 -234.11

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Net Profit

Net Profit is the bottom-line that any investors looks upon. How much did the company earn this year? Higher net profit translates into higher dividend to the investors.

Among these five microfinance, Chhimek Laghubitta earned Rs 64.92 crores in net profit which is the highest profit among the microfinance companies. However, the profit dropped by almost 30 percent from the previous year. Swabalamban Laghubitta is second interms of net profit earning Rs 35.62 crores. Forward Laghubitta reported a lowest profit of Rs 25.11 crores.

The table below presents the net profit earned by these five microfinance.

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 64.92 92.07 -29.49
2 Swabalamban Laghubitta 35.62 42.25 -15.69
3 Nirdhan Utthan Laghubitta 28.43 73.95 -61.56
4 Deprosc Laghubitta 27.5 43.02 -36.08
5 Forward Community Laghubitta 25.11 30.14 -16.69

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

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Non-Performing Loans (NPL)

Non-Performing Loans (NPL) refers to those loans in which the borrowers has not paid the scheduled payments of principal and interest. Lower NPL reflects the higher quality of lending. On the other hand, higher NPL is not favourable to the banking institution.

Among these five microfinance companies (MFIs), Chhimek Laghubitta has the lowest NPL of 0.45 percent followed by Nirdhan Utthan Laghubitta with 1.83 percent. Forward Community Laghubitta has the highest NPL of 4.67 percent.

The non-performing loans (NPL) of the microfinance is shown in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Chhimek  Laghubitta 0.45 % 0.28 % 60.71
2 Nirdhan Utthan Laghubitta 1.83 % 1.17 % 56.41
3 Swabalamban Laghubitta 1.99 % 0.77 % 158.44
4 Deprosc Laghubitta 2.47 % 0.84 % 194.05
5 Forward Community Laghubitta 4.67 % 0.47 % 893.62

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Cost Of Funds

Cost of Funds is the interest rate that the BFIs pay for the use of funds from the depositors or lendors. Lower cost of funds is favourable as it increases the margin. BFIs with lower cost of funds can also float the loans at lower rate thereby securing loyal and trustworthy borrowers.

Nirdhan Utthan Laghubitta has the lowest cost of funds of 8.55 percent followed by Swabalamban Laghubitta with 9.47 percent. Forward Community Laghubitta has the highest cost of funds of 10.01 percent.

The cost of funds of the five microfinance companies is shown in the table below:

Rank Microfinance FY 2076/77 FY 2075/76 Percent Change
1 Nirdhan Utthan Laghubitta 8.55 8.7 -1.72
2 Swabalamban Laghubitta 9.47 9.44 0.32
3 Chhimek  Laghubitta 9.71 9.76 -0.51
4 Deprosc Laghubitta 9.93 10.08 -1.49
5 Forward Community Laghubitta 10.01 9.83 1.83

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Earnings Per Share (EPS) & Net-Worth Per Share

Earnings Per Share (EPS) and per share net-worth are the important indicators for any investors. As higher EPS will result in higher dividend to the shareholders, investors tend to value companies more with greater EPS.

Among the five microfinance companies, Forward Community Laghubitta has an EPS of Rs 50.18. Likewise, Swabalamban Laghubitta is second with Rs 44.95 EPS. Nirdhan Utthan Laghubitta has the lowest EPS of Rs 18.96 due to drastic fall in net profit from the previous year.

Similarly, Forward Laghubitta also leads in per share networth with Rs 284.7 followed by Swabalamban Laghubitta with Rs 271.95 crores.

The Earnings Per Share (EPS) and networth per share is presented in the table below:

Rank Microfinance Earnings Per Share, EPS(Rs.) Networth Per Share ( Rs.)
1 Forward Community Laghubitta 50.18 284.7
2 Swabalamban Laghubitta 44.95 271.95
3 Chhimek  Laghubitta 43.28 212.97
4 Deprosc Laghubitta 27.35 182.86
5 Nirdhan Utthan Laghubitta 18.96 223.35

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

Also Read: Earnings Per Share (EPS) Of Commercial Banks In Nepal

Share Price & P/E Ratio

At Ashad end 2077, Forward Laghubitta has the highest share price of Rs 1651. On the other hand, Chhimek Laghubitta has the lowest P/E ratio of Rs 25.18. The table below shows the share price along with the P/E ratio of these companies.

Rank Microfinance Market Price Per Share (Rs.)  P/E Ratio
1 Chhimek  Laghubitta 1090 25.18
2 Swabalamban Laghubitta 1233 27.43
3 Deprosc Laghubitta 866 31.66
4 Forward Community Laghubitta 1651 32.90
5 Nirdhan Utthan Laghubitta 1015 53.53

Note: The above figures are based on the unaudited fourth quarter report of the fiscal year 2076/77.

The share price, as well as the P/E ratio, is based on the data of Ashad end, 2077. At current, the numbers may vary. 

Related: P/E Ratio Of Commercial Banks Of Nepal

Top 5 Microfinance of Nepal: Comparative Study

The comparative study is also summarized in the table below:

Headings Chhimek  Laghubitta Deprosc Laghubitta Swabalamban Laghubitta Nirdhan Utthan Laghubitta Forward Community Laghubitta
Paid up capital(Rs.’crores’) 150 100.54 79.24 150 50.04
Reserve and Surplus(Rs.’ crores’) 169.45 83.31 136.25 185.02 92.43
Borrowings (Rs.’Arba’) 4.07 6.51 4.76 6.95 5.95
Deposits(Rs.’Arba’) 18.67 4.94 9.29 13.34 5.61
Loans & Advances(Rs.’Arba’) 19.37 11.55 15.21 20.15 11.68
Net Interest Income(Rs.’crores’) 175.38 95.97 125.48 149.32 73.52
Operating Profit (Rs. “crores’) 87.07 -72.14 56.54 44.71 39.45
Net Profit(Rs.’crores’) 64.92 27.5 35.62 28.43 25.11
Non Performing Loans, NPL(%) 0.45 2.47 1.99 1.83 4.67
Cost of Funds (%) 9.71 9.93 9.47 8.55 10.01
Earnings Per Share, EPS(Rs.) 43.28 27.35 44.95 18.96 50.18
Networth Per Share ( Rs.) 212.97 182.86 271.95 223.35 284.7
Market Price Per Share (Rs.) [Ashad end, 2077] 1090 866 1233 1015 1651
P/E Ratio 25.18 31.66 27.43 53.53 32.90

Note:
The above figures are based on the un-audited quarterly report published by the respective company. Investors are advised to take other things into consideration along with this report while making investment decisions. The numbers may vary after the final audit.

Depending on the several indicators which microfinance among the five do you prefer? Feel free to share your views in the comment section.

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2 thoughts on “Top 5 Microfinance of Nepal: Comparative Study

  • February 11, 2020 at 2:38 pm
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    The 5 MFIs are grouped as top MFIs on the basis of their institutional profitability and capital. How about their program impact on their clients? Should we evaluate an MFI just based on its profitability?

    Reply
  • September 24, 2020 at 5:55 am
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    The information are highly useful to public at large. However, the contents neither can be stores nor printed. It is worthless without the retrieval system. It is suggested to make an arrangement for the both facilities.

    Reply

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