Till date 21 broker companies have obtained approval from NEPSE to issue margin lending, however, none of the companies has issued a single loan under the heading.
The main hindrance for broker companies to extend such loans is the conditions laid down in the margin lending procedure of broker companies.
Moreover, commercial banks have started issuing margin lending at a very low-interest rate. They are offering as low as 8 percent interest in such loans which has increased margin lending from banks.
However, investors are barred from investing a desirable amount in desired companies from the margin lending obtained from broker companies.
Such provisions in the margin lending procedure of broker companies have halted the expansion of margin lending from broker companies. If the margin lending from broker companies is easy and convenient than banks, then only it can flourish, says Bharat Ranabhat, Chairman of Nepal Broker Association.
As per the provision, investors can invest merely 10 percent in one company selected by NEPSE by the money borrowed from broker companies. “Such a provision may have been made in the procedure considering the risk,” said Ranabhat.
He said that broker companies can also extend a loan at par with decreasing bank interest rates. However, due to the provisions in the procedure, investors are not interested in taking margin loans from brokers.
After the margin trading from broker companies failed, a committee was formed by NEPSE to study the issue. The committee submitted a report regarding the issue about seven months ago. Out of three suggestions made by the committee, SEBON has already addressed an issue regarding the increasing limit of margin lending.
The committee also suggested that the provision of investing only 10 percent in a company should be removed. The margin lending procedure that was brought to keep the market afloat has reached the verge of being a failure. Brokers say the plan will only succeed if some policy reforms are made.
Meanwhile, SEBON is also been positive about revising the margin lending procedure. "We are asking for some amendments in the procedure and the board is taking it positively," Ranabhat said.
