The central bank has tightened dividend distribution, capital increment and interest rate of microfinance companies which is affecting their business expansion.
NRB banned the right issue of microfinance companies for the last three years. Thus, the companies opted for bonus share distribution to increase their capital and to expand their services, said Basanta Lamsal, Chairman of Nepal Microfinance Bankers Association. However, the ongoing liquidity crunch in the banking sector might surely limit their expansion, Lamsal opined.
Moreover, the tightening of dividend distribution by NRB will also affect their businesses. Previously, microfinance companies distributed comparatively more dividends than other listed groups of companies. However, NRB capped the dividend at 20 percent. For excess dividends, the companies are required to maintain 50 percent provision. Thus, the dividend distribution rate may decline this year, however, few companies have announced of distributing above 20 percent dividend to their shareholders in this year.
Similarly, NRB has allowed the companies to charge a maximum of 15 percent interest from borrowers. Given that they lend money by borrowing funds from BFIs, an increase in interest rate will increase the cost of funds of the companies resulting decrease in profit. A decrease in profit will also squeeze their dividend capacity.
Lamsal viewed that if NRB keeps formulating such policies for microfinance companies, the upcoming days might fill with difficulties for them. As the central bank is well aware of the fact, Lamsal is confident that the central bank will soon become flexible toward the sector.
