Spread cap to bring interest rate of MFIs down: Shiwakoti

Published On: August 13, 2016 02:40 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Aug 13: Nepal Rastra Bank (NRB) Deputy Governor Chintamani Shiwakoti has said that the central bank would review the provision of 7 percent spread cap on the cost of fund of microfinance institutions only if they feel any difficulty in implementation of the policy.

Speaking at the silver jubilee celebration of Centre for Self-help Development, an NGO that works on micro finance sector, Shiwakoti said that the interest spread cap measure intends to bring down the interest rates charged by microfinance institutions who, many say, are charging exorbitantly rates.

"Microfinance institutions are meant to serve the rural and poor people. But their motive seemed to be largely guided by profits. They have been found charging as high as 32 percent interest rates," said Shiwakoti. "The measure to impose spread cap on the cost of fund is to bring down the interest rates. The interest rates should not be more than 17-18 percent. The spread cap policy would be implemented. We will review through circular if there are any difficulties as we move on in the implementation process," he added.

In the Monetary Policy for Fiscal Year 2016/17, the central bank has announced that it will impose 7 percent spread cap on the cost of funds of microfinance institutions. It has also made it mandatory for the commercial banks to float at least 2 percentage points of their deprived sector lending, out of 5 percent that they have been required to do, tightening the flow of fund to the microfinance institutions which have largely relied on BFIs for their source of funds.

Central bank officials say that both the measures aim to reduce interest rates of microfinance institutions.

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