The microfinance companies operate their business by borrowing funds from BFIs, thus, an increase in the interest rate of BFIs means an increase in the cost of microfinance companies.
The companies can charge a maximum of 15 percent interest from their customers in lending which has made the BFIs borrowed fund expensive for them.
Even though, the companies have started complaining of not getting loans from the BFIs for business operation.
According to Jagat Pokharel, Chairman of Nepal Microfinance Association and Basanta Lamsal, Chairman of Nepal Microfinance Bankers Associaton, the cost of microfinance companies has increased due to increased interest rate, thus, they are preparing to go into dialogue with the concerned authorities.
Lamsal said that BFIs have stopped lending microfinance companies which have created confusion in the sector.
Num Nath Poudel, CEO of First Microfinance Company said that the increased interest rate will affect the income and profit of the microfinance companies.
Poudel claim that the effect will not take place immediately however will be seen in the next quarterly report.
He added that although they get funds in the base rate, the current increased base rate of plus three will significantly increase the cost of the companies.
Poudel suggests that the upper cap in the interest rate of microfinance companies should be scrapped, instead, a spread rate should be allowed so that the increased cost of fund could be managed by increasing their interest rate as in the banking sector.
