Liquidity Crunch Hits Nepalese MFIs

Jan 2010
Kathmandu, Nepal, January, 18 2010 - Micro Finance Institutions (MFIs) in the country now are on the receiving end of liquidity crunch.

The MFIs that used to get loan from commercial banks at four percent interest rate are now compelled to pay seven percent. Subsequently, MFIs too are mulling to increase interest on their lending.

Liquidity crunch in the market and high rate of institutional investors have forced the commercial banks to increase interest rates in deposits. And, it has increased their lending rates. Along with increment in home loan and auto loan, the interest rate in micro-credit lending is set to go up.

"Higher lending rates of banks and financial institutions have compelled us to increase our lending rate," said Harihar Dev Pant, chairman of Nirdhan Utthan Bank. Currently, the MFIs are giving loans at 20-24 percent interest. Now, it is likely to go up by two to three percent. "We have to make an immediate move to increase the lending rates," said Pant. There are 15 Micro Credit Development Banks and 45 Financial Intermediary NGOs (FINGOs) involve in the micro finance in the country. According to Tejhari Ghimire, CEO of Centre for Micro Finance, these institutions annually do lending of Rs. 30 billion. "After liquidity crunch, some of the banks have started to ask us to return the money," said Ghimire.

The loans from commercial banks are the major sources for the MFIs. "The MFIs are ready to pay up to 6 percent interest rate," said Ghimire.

"But it's very hard to find the money." According to Ghimire, the MFIs will be facing shortage up to Rs. 15 billion. "I've been asking three foreign institutions to provide the money," said Ghimire. If the MFIs face the difficulty to manage their sources, around 1.8 million poor will be directly affected.


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