MFIs told to get credit report of borrowers

MICRO finance institutions (MFIs) have been required to obtain the credit history of potential borrowers from the local branch offices of commercial banks, development banks or finance companies before extending loans exceeding Rs 50,000. Nepal Rastra Bank (NRB) has asked MFIs to acquire credit information about their potential borrowers from A, B and C class banks or financial institutions, according to a central bank official. Earlier, they were required to share credit information with peer MFIs and D class financial institutions. Meanwhile, the central bank has increased the loan limit to Rs 50,000 from Rs 30,000 for examining the credit history of prospective borrowers from peer institutions. This means that any MFI wishing to extend a loan should seek details about the potential loanee from other MFIs, cooperatives and non-government organizations licensed by NRB for conducting limited banking activities within a working area. Working area has been defined as the area of a municipality or VDC excluding neighbouring VDCs or wards. The central bank has also barred MFIs from charging a fee for giving or obtaining information related to the credit history of potential borrowers. The central bank has allowed D class financial institutions to extend loans of up to Rs 100,000 to a group member from a poor background to start a micro enterprise or other business against the group’s collective guarantee. “They can provide loans of up to Rs 150,000 to each member of the group provided it has a good borrower record for the last two years,” states NRB’s circular. Likewise, a family can get similar loans for micro enterprises such as micro hydropower projects of up to 50 kW, solar home system, solar cooker, solar dryer, solar pump, biogas, improved water mill, improved cook stoves and wind energy. The circular has also set the criteria for extending bigger loans to micro enterprises run by poor people against collateral although the monetary policy has increased the size of such loans to Rs 400,000 from Rs 300,000. Only borrowers having a good track record of repayment for the last two years will be able to enjoy increased credit from D class financial institutions. For start-ups, the maximum size of the loan has been kept at the old level of Rs 300,000. Nepal Rastra Bank has asked MFIs to acquire credit information about their potential borrowers from A, B and C class banks or financial institutions