Workshop on Current Risk in the MFI Industry Concludes

On 26th and 27th of March, UKaid Sakchyam Access to Finance Programme (Sakchyam) and Nepal Microfinance Bankers’ Association (NMBA) jointly organized a two day workshop on “Current Risks in the Microfinance Industry: Understanding the Implications and Developing a Collective Approach to Addressing Them”. The main objective of the workshop was to review the current trend in the Microfinance (MF) industry and find ways to avoid any potential disaster that the industry may face in the near future.

The MF industry of Nepal has evidenced significant growth in the last decade. In addition to 53 MFIs (as of July 2017), dozens of FINGOs and Cooperatives licensed by Nepal Rastra Bank (NRB) – with several more waiting regulatory approvals – are undertaking the provision of microfinance services.  Further, a number of Commercial Banks have also initiated their own MSME lending operations. However, this large agglomeration of institutions within the industry is bringing in some daunting challenges. These include multiple borrowings amongst MFI clients that is leading to an alarming increase in the non-performing loan portfolio; a huge increase in the cost of funds for MFIs exacerbated by the liquidity crunch, regulatory requirements related to upper ceilings on interest rates, limited financial innovation within the industry, legal obstacles to attracting outside investments and the ability to mobilize deposits from other than members, etc.

In this regard, the industry came together for the two days to collectively address these challenges. With CEOs from more than 50 MFIs participating in the workshop, the participants;

  • Shared about their current practices and reflected on areas where the practices need to be corrected and subsequently agreed on a draft of the “Code of Conduct”.
  • Identified areas where legal regulatory reforms are needed and put forward a set of recommendations for NRB’s consideration.
  • Identified specific actions needed to make the CIB sharing more effective and MFI friendly.
  • Identified specific actions needed to deal with issues related with meeting “funding gap” for MFIs including attracting outside investment.

Honorable Governor of Nepal Rastra Bank, Dr. Chiranjibi Nepal was the Chief Guest of the opening session. “This workshop is very timely and I urge all the participants here to come up with a solution from your part and also give us, the regulators, a set of recommends which can help the industry overcome some of the grave challenges that have come forward at this time”, said Dr. Nepal during his opening remarks.

There were four paper presentations on the first day of the workshop from Nepal Rastra Bank (Mr. Janak Bahadur Adhikari), NMBA (Mr. Prakash Raj Sharma), Sakchyam (Mr. Prahlad Mali) and CIB (Mr. Subhadra Shree Rajbhandari); and these sessions were chaired by industry experts – Mr. Jalan Kumar Sharma, Executive Chairperson of CMF, Mr. Dharma Raj Pandey, Former Chairperson of NMBA, Mr. Pitambar Acharya, Former Chairperson of MIFAN and Mr. Ram Chandra Joshee, Chairperson of NMBA.

Presentations from the workshop can be downloaded from the links given below:

Nepal Rastra Bank Presentation

Sakchyam Presentation

NMBA Presentation

CIB Presentation