What Does the Microfinance Problem Resolution Task Force Report, Ignored by the Government, Contain?
Following a detailed review of news highlights, microfinance victims have been maintaining a collective hunger strike for four consecutive days, demanding the public release and implementation of the task force report aimed at solving their issues. Since Thursday, dialogue has begun between the government-appointed negotiation committee and the protesting microfinance victims. The report proposes several measures including providing loans at a 3% interest rate for up to four years for the genuine victims and abolishing the group lending system.
As of 15 Shrawan in Kathmandu, microfinance victims maintain that implementing the task force report will resolve their problems. However, the full content of the report has not yet been made publicly available. In pursuit of its disclosure and execution, victims even approached the Supreme Court, which issued a directive to the government, Nepal Rastra Bank, and microfinance institutions. Marking the fourth day of their hunger strike, victims continue to press for the implementation of this order. The government has formed a dialogue committee and started talks since Thursday.
The microfinance problem resolution task force was established on 2 Chaitra 2080 (mid-March 2024), following an agreement between the then Finance Minister, Bishnu Prasad Paudel, and the agitating microfinance victims. The task force submitted its report to the government in Bhadra 2081 (August-September 2024). The report outlines recommended actions for the government, Nepal Rastra Bank, microfinance financial institutions, and their members.
According to the report, issues arose as borrowers from microfinance institutions faced difficulties due to loans taken from savings and credit cooperatives and other microfinance institutions. Hence, the report suggests regulating cooperative financial transactions more strictly. It further stipulates that only microfinance financial institutions approved by Nepal Rastra Bank should conduct microfinance-related programs.
The task force recommends compiling data on borrowers who have defaulted or are facing difficulties, and clarifying that microfinance institutions must submit these details within 60 days to identify genuine cases. The report also suggests that Nepal Rastra Bank should ensure no harassment or mental torture in workplaces under the guise of pressuring members who delay loan repayments or savings deposits.
Borrowers are expected to use loans solely for their intended purposes, repaying installments on time from the cash flow generated by their projects. One task force member shared that Nepal Rastra Bank has already issued directives based on the report, urging respectful treatment of borrowers and fostering cordial relationships between borrowers and institutions, emphasizing mutual consultation when lending and borrowing.
The member further noted that both microfinance institutions and members share responsibility for problems. “Borrowers received loans but did not invest in their projects,” the member said. “They wasted the money, leading to repayment difficulties. Regarding interest rates, Nepal’s microfinance rates are among the lowest in South Asia.” The operation and recovery costs of microfinance services are high, and risks are significant, with around 80% of loans turning non-performing. Studies also reveal that some cases stem from natural disasters.
“Microfinance institutions initially disbursed loans indiscriminately without adequate project evaluation,” another member added. “Borrowers misused the funds. The report recommends partial waivers on interest, restructuring loans, and extending repayment timelines by three years; however, principal repayment is non-negotiable.” The report also suggests mutually selecting genuine victims through agreement among Nepal Rastra Bank, microfinance institutions, and victims’ representatives.
To rehabilitate genuine victims, the government is proposed to offer loans ranging from NPR 100,000 to 400,000 at 3% interest for four years. Provisions for financial literacy, vocational training, business insurance, and market management guarantees are also part of the report. Additionally, members should be allocated 50 to 100 shares in the microfinance institutions. The report advocates abolishing the collective loan system, restricting members from joining multiple microfinance institutions, granting up to four years to capable members to assist troubled borrowers without penalties, and measures against blacklisting or auctioning collateral. Moreover, it prohibits employees from obtaining signatures or checks on blank documents.
Victims continue their collective hunger strike demanding the implementation of the task force report, alongside ongoing talks with the government.