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| Kathmandu, Tuesday February 25, 2003 Falgun 13, 2059. |
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NRB tightens screws on
micro-credit dev banks
By Milan Mani Sharma
KATHMANDU, Feb 24 - Nepal Rastra Bank (NRB)
today issued a set of directives to the micro-credit development banks, binding these
institutions in its standard for the first time. The directives, which came into effect
from Monday, were endorsed on Thursday.
The directives is in line with the prudential
norms that the NRB issued to other financial institutions earlier and provisions the
micro-credit development banks (MCDBs) to maintain sound financial condition.
"However, it provides leverages on certain
provisions as the scale of strictness and standard is relatively toned down," said
Trilochan Pangeni, Director at Bank and Financial Institution Regulation Department
(BFIRD).
With the new NRB directives, the MCDBs now need
to be sensitive to its capital adequacy, liquidity and loan portfolios, among others. They
would also need to maintain cash reserve ratio (CRR).
The NRB has asked the micro-credit institutions
to maintain a capital adequacy at 4 per cent by the fiscal year end 2003/04, raise it to 6
per cent by 2004/05 and 8 per cent by the year end 2005/06. The capital adequacy ratio is
lower than what has been stipulated for other financial institutions. Banks and other
financial institutions need to maintain it at 12 per cent.
The MCDBs have been allowed to mobilise
resources up to twenty-fold of their total primary capital. They can use tools like
borrowings from group members and debentures for the purpose. These banks are not allowed
to mobilise capital from general public.
Given the scenario, wherein the development
banks working in micro-credit are found facing resource constraint, the new provision is
expected to relieve them of capital mobilisation, say the NRB officials.
With the new directives, the micro-level
development banks need to maintain cash reserve ratio of 0.5 per cent of their respective
deposits and lending funds from April 13 this year. "This can be maintained at the
central bank or any other commercial banks authorised by the NRB to do so," states
the directives.
From the same date, the MCDBs also need to
maintain liquidity of 2.5 per cent. "This provision has been incorporated to maintain
a sound reserve for their account settlement," said officials. In case of default,
the new directives have provisioned to fine the defaulters up to three-fold of the highest
refinance rate on the shortfall amount.
The central bank has also asked the micro-credit
institutions to classify their loans as good, inferior, doubtful and bad and provision for
loan loss at 25 per cent, 50 per cent and 100 per cent respectively for inferior, doubtful
and bad loans. For this fiscal year, the MCDBs need to classify loans not settled up to
three months of loan maturity as good, from three to nine months of maturity as inferior,
from nine to two years as doubtful and over two years as bad loans.
However, from the next fiscal year loans unpaid
even after the passage of nine months and before a year of loan maturity need to be
classified as doubtful and that crossing over a year as bad from the next fiscal year. The
provisions for good and inferior loans are not changed.
The central bank has asked the MCDBs to confine
their micro-enterprise credit provided on group guarantee to Rs 30,000 per person. In case
of collateral-based loans, the amount could go as high as Rs 100,000. "In any case,
single credit or investment of the MCDBs should not cross over 25 per cent of its total
loans investment," the directives state.
The micro-credit institutions are allowed to fix
the interest rate and service charges themselves. Owing to higher risk and cost of
delivery, the interest rates of the MCDBs are on a higher side.
Currently, nine MCDBs including five rural
development banks are operating in the country. Such institutions, primarily working with
lower section of the society at the grass-roots level, are perceived as crucial
instruments for poverty reduction.
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