Currently, 21 microfinance and rural development banks are operating in the country. These banks have issued collateral-less micro loans of Rs 77.36 billion till mid-July through numerous microfinance institutions operating in various suburban and rural areas of the country.[break]
Of the total loan issued, Rs 14.84 billion is outstanding credit, meaning the rest of Rs 77.36 has been recovered, while the amount of overdue loan stands at Rs 297.94 million.
The amount of overdue loan, which is only two percent of the total outstanding credit, is very small and does not signal any threat. But many customers have started getting credit from multiple microfinance institutions, raising fears of pushing up the number of defaulters - hence the need for credit information bureau.
A high ranking official of Nepal Rastra Bank told Republica that the microfinance institutions´ demand was valid as such a bureau would immediately give away information on history of the borrower preventing duplication of loans.
"This looks like the only way to control the problem, although such a bureau should make its services available at affordable rates," the official said.
As per the principles of microfinance, one client can borrow money from only one institution. In order to change the institution, the client has to first clear all the debt before moving on.
"But now we have found one person getting credit from as many as 10 institutions, while another borrower was found getting a credit of as much as Rs 1.2 million from various institutions," a high-ranking official of one of the largest wholesale microfinance banks told Republica, declining to reveal names of clients and institutions that had issued the loans.
"Since these people are unlikely to pay the loans, the microfinance institutions will be required to foot all the bill as individual loans issued by microfinance institutions are collateral-less," the official said on condition of anonymity.
While the individuals can be blamed for laying the groundwork for companies´ fall, microfinance institutions themselves should also be held equally responsible for fuelling a culture of greed among borrowers.
These days, many microfinance institutions are crowding in the same area as they do not want to take the risk by entering a virgin territory.
"But instead of trying to form groups of people who have not been served by microfinance institutions, these institutions only poach clients of other institutions by promising bigger amount of loan. So more than individuals it is the institutions that are to be blamed for creating moral hazard," the official said.
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