Is question arises in the existence of microfinance in the context of Nepal.
Madan Shrestha
Is question arises in the existence of microfinance in the context of Nepal. Why people are marching and campaigning against microfinance performance and their activities. The concept of microfinance is formed by Muhammad Yunus in Bangladesh. Professor Muhammad Yunus is often considered the father of microfinance. He won the Nobel prize for his” efforts through microcredits to create economic and social development from below” in a 2006 Ad. The microfinance market in Bangladesh has gained tremendous exposure in the last three decades and it has proved that poor people are creditworthy and they repay loans regularly. In the microcredit program in Bangladesh, many lending methodologies were tried, and later on, the group-based approach was mostly successful when it was tested.
In general, the meaning of microfinance is a banking service provided to low-income individuals or groups who otherwise would have no other access to financial services. Microfinance aims to promote financial inclusion, empower marginalized communities, and foster economic development by providing access to financial resources and services to those who need them most. Microfinance allows people to take reasonable small business loans safely in a manner that is reliable with ethical lending practices. Muhammad Yunus introduced microfinance. He believed that small loans could make a big difference in their lives. He started to give micro to villagers, which meant providing small loans to marginalized communities without any excessive collateral. According to Muhammad Yunus, this concept was an establishment totally for the poor.
Over the years, the microfinance models found themselves replicated in over 100 nations, including the United States of America. In Bangladesh, microfinance made a substantial contribution to poverty reduction and economic development. The microcredit sectors in Bangladesh exposed a remarkable diversity. Microfinance institutions offer an assortment of loan products and services carefully designed to cater to the unique needs of various borrower segments.
According to the Microcredit Regulatory Authority (MRA), their report highlighted that over 40 million individual initiatives 90 percent of these beneficiaries were women in Bangladesh. Microfinance enhances equality and fosters the economic empowerment of women. It has also played a pivotal role in fostering social development within Bangladesh.
But now in Nepal, why questions have been raised about microfinance’s position, performance, and entire outcomes day by day? Financial institutions are categorized as A, B, C, and D which are Bank, Development Bank, Finance, and Microfinance. These financial institutions are regulated by Nepal Rastra Bank. NRB is the sole regulatory body of microfinance. The policy, guidelines, and framework formed by NRB are mandatory for financial institutions. To open or regulate the functions of financial institutions is compulsory to obtain a licence from the Nepal Rastra Bank. Without the permission of NRB, no one financial institution can proceed or operate their offices. Therefore, NRB is fully responsible for operating or does not operate the whole financial institution at any cost.
Mainly We discuss the sector of microfinance because anti-slogans are rising and protesting in almost all areas of Nepal making microfinance activities. If microfinance goes out of rules and regulations, policy, and guidelines NRB directs control over it. NRB regulates, supervises, and monitors its capabilities and its whole performance. Directly or Indirectly NRB is being inspected and superviging to the financial institutions on their whole performance. NRB inspects onsite inspection and offsite supervision of the microfinance consistently. If any one financial institution is going off of track immediately NRB warning to operate on their everyday functions. NRB made several innovative attempts to develop a microfinance framework in the country.
At present various groups or large numbers of microfinance customers have been agitating and protesting against microfinance. They are appealing that the loan which is taken by them from microfinance should be written off as they want. The single slogan of customers is that they are not to be suppressed by microfinance to pay the loan. Here are the questions that we have to think about and rethink on it. How the microfinance provides the loans to their customers. What are the main sources of funds or cash that microfinance can cater the cash to their customer as a loan? How it is managed. It is easy to manage the funds that are easy to distribute to their customer as a loan. No, it is not easy to manage the funds or capital to operate the financial offices. There are great challenges to managing the funds for any type of financial institution. The sources of funds or capital are equity, debt, shareholders” funds and deposits, and non-commercial sources, such as donations, grants, etc. Why the depositors deposit cash in financial institutions? To deposit cash by the customers in any financial institution is to interest, without interest no one depositor deposits in financial institutions. With no public deposits, how do function the financial institutions? Here are the big and critical questions that arise in front of us.
Most financial institutions run their offices taking deposits from the depositors and catering the loans to their customers maintaining the nominal margin rate under the policy, framework, and guidelines of Nepal Rastra Bank. All financial institutions are obligated to follow the guidelines is mandatory. Therefore all financial institutions are not free to charge interest rates whatever they want and need. Various economic dimensions are responsible for determining the interest rate which is circulated and the fully authorized body is Nepal Rastra Bank.
If the loan taken by the customers from microfinance is not paid then how does microfinance return the deposit, borrowed capital, shareholders’ funds, loan, and the money of investors? Is the slogan of the loanee of microfinance considerable? It is the principle and rule that those who take a loan are bound to pay after the maturity of its duration. Nowadays, over the past week, demonstrators against microfinance have been holding rallies in various locations around the Kathmandu Valley. Numerous critical issues should be resolved without any delay by all the concerned bodies.
When the customers take the amount as the loan if they use the loan in productive projects definately the loanee can return the loan within the given time or duration. If the loan is not invested in a productive project how do they return the loan in time? Therefore every loanee should invest the loan in productive sectors. Thus, the government, NRB, and concerned bodies should be involved in settling this anti-slogan by the demonstrators against microfinance. If it is not settled down in time, financial crime, fraud, violent crime, and various unexpected incidents will happen.
If the customers of microfinance are charged excessive interest unnecessarily suppressed to borrowers, minutely to be inspected by the NRB authorized committee. With more delay, more unexpected results will appear. As a result, the nation will have to face to assure the global world. Hence, the government requires a multi-faceted approach to settle down the demand of microfinance clients.
Ex-Deputy Director of Agricultural Development Bank (ADBL)