This paper is intended to “enable international understanding of the finances of MFIs [microfinance institutions] in Nepal and the potential role of external lenders in supporting the ecosystem of the country.” According to Mr Sinha and Dr Dhakal, the COVID-19 pandemic has had less severe effects on the microfinance sector in Nepal than it has in countries such as India and Myanmar. This is partially because MFI customers in Nepal didn’t make significant withdrawals from their savings during the lockdown from March to July 2020. However, a liquidity crisis still may emerge among MFIs in Nepal due to increasing demand from migrant workers who are returning to the country. Meanwhile, an increase in staff usage of digital devices during the lockdown exacerbated the problem by raising operational costs by 10 to 15 percent.
The authors review the July 2019 balance sheets of 16 larger MFIs in the country to develop projections for the 12 months ending July 2021. The analysis assumes repayment rates recover to 99 percent and that MFI borrowing grows by 30 percent and disbursements drop by 30 percent relative to the earlier year.
The results indicate that 10 of the MFIs in the sample will need liquidity infusions totaling at least NPR 16.5 billion (USD 137 million), which is greater than five percent of their total funds.
The shortfall may grow to NPR 50 billion (USD 400 million) or more as returning migrants apply for loans, causing disbursements to rise to perhaps 90 percent of pre-pandemic levels.
Another scenario is that the amount of additional borrowing by MFIs could rise to 40 percent. Although this would reduce the liquidity shortfall, the authors do not expect it would meet demand, hence they believe intervention from Nepal Rastra Bank, the country’s central bank, will become essential.
This is a summary of a paper by Sanjay Sinha and Nara Hari Dhakal, published by M-CRIL, August 2020, 7 pages, available at https://www.findevgateway.org/paper/2020/08/covid-perspective-nepal-microfinance
By Romil Pandey, Research Associate
Additional Resources
M-CRIL homepage
https://www.m-cril.com/
FinDev Gateway homepage
https://www.findevgateway.org/
MicroCapital paper wrap-up on M-CRIL Cambodia study
https://www.microcapital.org/microfinance-paper-wrap-up-has-the-pandemic-spared-cambodia-liquidity-considerations-of-cambodias-large-mfis-by-sanjay-sinha-published-by-m-cril/
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