Non-Performing Loans Surpass 10% in 21 Microfinance Institutions; Loan Defaults Rise Amid Property Market Slump
The COVID-19 pandemic and the ensuing economic downturn have further complicated loan recovery issues in the microfinance sector. According to Nepal Rastra Bank, as of the second quarter of the current fiscal year, the non-performing loan (NPL) rate in microfinance institutions has reached 9.99 percent. Among 21 microfinance institutions, the NPL rate exceeds 10 percent, with Sanjivani Microfinance recording a staggering 100 percent bad loan rate. Kathmandu, April 19.
The challenges in loan recovery within microfinance have intensified. The economic disruptions caused by the pandemic and recession have created a complex situation for the sector. Since banks and financial institutions have a significant portion of their resources directly and indirectly tied to real estate, the entire economy has been impacted. The government’s attempts to regulate the burgeoning real estate investment bubble have pushed the economy further into recession.
During fiscal year 2077/78 (2020/21), loans disbursed by banks and financial institutions to the private sector increased by 28 to 30 percent, yet economic growth remained limited to around 4 percent. The preceding fiscal year had witnessed negative growth. Subsequently, Nepal Rastra Bank tightened investment regulations in the financial sector. When signs of this move impacted the real estate market, an economic downturn ensued. Economists note that without improvements in real estate transactions, economic activities have been unable to return to pre-downturn levels.
The situation has become even more complex in the microfinance sector due to credit misuse, multiple borrowing, and a rising number of loan defaulters. Nepal Rastra Bank conducted studies to address these issues. Based on these, the bank implemented various policy measures aimed at resolving microfinance challenges and moving forward. These policies included stricter regulations on loan rescheduling and restructuring, interest rates, service charges, and loan limits. Although the central bank’s policy reforms were expected to alleviate sector problems, the situation appears to have worsened.