Such an arrangement is being worked out mainly to cap multiple lending in the microfinance sector, Bhaskar Mani Gyawali, spokesperson for the NRB, told Republica, without divulging when the directive would come into force.[break]
Microfinance is a sector in which collateral-free loans of up to Rs 80,000 are issued at one time to a single borrower. As per the principles, these borrowers have to stick to a single institution, and in case they want to change the board, they have to clear debt in one institution before moving to the other.
But lately, the central bank has come to know that borrowers in the eastern terai region - mainly Jhapa - have started getting credit from multiple institutions, piling up the amount of debt.
A high-ranking official of one of the largest wholesale microfinance banks had earlier told Republica that his institution in the east had found one person getting credit from as many as 10 institutions. Another person had piled up debt of as much as Rs 1.2 million by taking loans from various institutions, he said.
"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.
This practice has raised the eyebrows of regulators, who fear this trend may gradually push up the level of bad loans in a sector which has a reputation of securing almost 100 percent debt recovery rate.
Microfinance institutions say the cases of loan duplication have emerged as they do not have credit information of borrowers. And they believe the central bank´s decision to order institutions working in an area to share credit information will nip the problem of "one borrower, multiple loans" in the bud.
But others are skeptic.
"You think the institutions are being honest when they are say they do not have knowledge of the background of borrowers?" a high-ranking official of a microfinance institution questioned, while putting equal blame on microfinance institutions for "fuelling the culture of greed among borrowers".
His statement stems from the trend in the market, where microfinance institutions are crowding the same area to poach each others clients, instead of moving to areas where microfinance services are not available.
"These institutions then give loans to people despite being well aware that they have not left the other institution," the official said.
A central bank official said, once the directive is issued, microfinance institutions will be held accountable if they issue loans without screening the credit history of the borrower.
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