MFIs funded projects should be made mandatory to purchase insurance policy 

KATHMANDU, Sept 5: A taskforce formed by the government to study the problems in the microfinance institutions (MFIs) has mandated that the projects to be funded by MFIs be insured while receiving loans from these financial institutions.

The Ministry of Finance (MoF) five months ago formed a seven-member taskforce to identify problems surfaced in the microfinance sector and recommend appropriate solution measures. The committee led by the Deputy Governor of Nepal Rastra Bank (NRB) Neelam Dhungana Timsina includes high ranking officials of the MoF and representatives of the microfinance victims struggle committee. 

In a report that the taskforce submitted to the MoF, it has suggested mandatory insurance for the projects to which the MFIs provide loans. “In absence of the insurance, the borrowers are unable to pay back the loans of the MFIs while they have to be indebted for a longer period if the projects go into bankruptcy,” reads the report.

As of now, only an individual borrower or their spouse has to purchase an insurance policy while receiving loans from the MFIs. However, the provision does not provide backup for the settlement of loans.

Aiming to create self-employment and income opportunities among the poor, the NRB has facilitated the operation of MFIs across the country. However, the MFIs have been blamed for charging exorbitant interest rates from their clients thereby subjecting the poor people into perpetual a cycle of debt. On the other hand, many MFIs have also been found struggling to recover loans from their borrowers.

Until the previous year, when the NRB put a 16.5 percent cap on lending, it was often reported that the cost of borrowing from MFIs frequently crossed a 30 percent mark. Likewise, a number of anomalies have also been reported against the MFIs.

According to the MoF officials, the report talks about barring a borrower from taking loans from the same MFIs for at least next one month after the person clears the previous dues. Likewise, the MFIs are recommended to separate their borrowers on the basis of their ability to pay back loans.

Reform in internal control system of the MFIs, providing a chance to restructuring of the loans of the actual victims of the COVID-19 and extending the deadline to settle loans, facilitating MFIs to open their branches in rural areas than urban areas, mandatory provision making MFIs to issue at least five percent of their loans in deprived sector and correction of the shortcomings in MFIs’ operations are among the recommendation forwarded by the taskforce.  

 
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