Head office in Bijaypur, Kaski, Sparsha Microfinance Financial Institution Limited is providing microfinance services by expanding its 20 branches in Kaski, Tanahu, Lamjung, Gorkha, Parbat, Myagdi, Baglung and Nawalpur in Gandaki and Parasi, Gulmi and Arghakhanchi in Lumbini. Despite the lockdown, last year. The organization, which has managed to earn a net profit of Rs. 28.8 million, has been providing microfinance services to about 19,000 households. The institution, which has so far invested Rs 1.13 billion in loans, is soon going for acquisition with Global IME Microfinance Institution. An edited excerpt of a successful conversation with Sajal Khadka, who has been working in the field of microfinance for the past 15 years and is currently the Chief Executive Officer of Sparsha Microfinance Financial Institution Limited for three and a half years, about the organization’s current activities and future plans:
At this time, the epidemic of Corona virus (Covid-19) has had a direct impact on the world economy ?
In my opinion, the biggest negative impact of the Corona epidemic has been on the microfinance sector. The nature of the microfinance program is to work in groups, reach out to customer members’ homes, and work directly with the community. Which was not possible due to the nationwide lockdown for control of the corona virus. During the lockdown, almost all microfinance institutions were closed. Business came to a standstill. Customers could not pay the installment. After a while, the nature of the lockdown changed and it became a little easier to meet the customers.
However, some of them were not able to pay the regular installments. This situation is still going on. In particular, the microfinance sector has been affected by the decline in credit quality, increase in overdraft rate, contraction in credit investment, decrease in interest income and other operating income, decrease in profits, inability to conduct central meetings and reduction in the quality of field.
If you look at the financial statements of the last financial year, the profit of most of the banks and financial institutions has decreased while the non-performing loans have increased. What is the financial condition of this microfinance institution led by you?
The lockdown caused by the corona virus did not meet the target. After the lockdown, the regular interest income and other income stopped, but the expenses remained the same. In addition, the policy of Nepal Rastra Bank to give 10 percent interest rate till mid-April and 3 percent interest rate till April, May and June has adversely affected the income.
We requested to be in regular telephone contact with the customers during the lockdown and to avail the discount offered by the National Bank of Nepal (NBN) to pay the minimum interest till the end of the year and we were successful to a large extent. So you also managed to make a satisfactory profit. This microfinance led by me seems to have excellent financial statements. Last year You have made a net profit of Rs. Accordingly, the earnings per share is Rs. 30.74. Net worth per share is Rs.139.23. Non-performing loans increased slightly to 1.76 percent from the previous quarter.
The problem that the financial sector is facing now, how long will this problem last?
At present, the demand for credit in the financial sector has declined and a situation of excess liquidity has emerged. Although woodcuts have been removed in all but a few areas, trade has not been smooth as corona infections have been on the rise. However, some activity in the market seems to have increased. With the start of the festive season, there has been some improvement in trade and business. However, as expected, business and banking activities will take some time to run. France and the United Kingdom have recently announced a second round of nationwide lockouts. Looking at it this way, it seems that the epidemic of Corona may take at least another year to end. I think the banking and financial sector will have to deal with such problems throughout this financial year.
Is there anything that the government and Nepal Rastra Bank need to do immediately for the microfinance sector?
Nepal Rastra Bank is not only the regulatory body of the microfinance sector but also the guardian. In order to manage, monitor, regulate, supervise and promote the microfinance sector of Nepal, Nepal Rastra Bank has been issuing various policies and directives in a timely manner. Given the current situation, it would be a great relief to the MFIs if the installments paid from the lockdown period to the first quarter of this Fiscal Year could be extended for at least 6 months to 1 year after the loan period according to the customer’s condition. There are many other things that our association has put before Nepal Rastra Bank.
Can you briefly describe the scope and financial status of touch microfinance?
Sparsha Microfinance has been working in 10 districts. It has expanded its 20 branches in Kaski, Tanahu, Lamjung, Gorkha, Parbat, Myagdi, Waglung and Nawalpur in Gandaki and Parasi, Gulmi and Arghakhanchi in Lumbini. As I have said before, despite the downturn, the company has achieved satisfactory profits in the last fiscal year. You have made a net profit of Rs. Earnings per share stood at Rs. 30.74 and net worth per share stood at Rs. 139.23. Non-performing loans increased slightly to 1.76 percent from the previous quarter.
The number of customers, branch network, how many are there and how many loans have been invested so far?
This microfinance has so far been providing microfinance services to about 19,000 households through 20 branches in 10 districts. The investment loan so far has been Rs. 1.13 billion.
What is the probability of debt sinking due to investment in microfinance group?
The beginning of microfinance is for the poor, marginalized people who do not have collateral, do not have access to big banks. Looking at the recent practice, it can be seen that the recovery of unsecured loans in microfinance is almost 100 percent. Currently, the quality of microfinance loans is deteriorating due to large size of loans, decrease in group guarantees, increase in misuse of loans, development of non-payment of microfinance loans, unsustainable staffing, high debt burden, duplication, etc. However, the merger and acquisition policy of Nepal Rastra Bank will soon reduce the number of microfinance institutions and all problems can be expected to improve.
What percentage of customers’ standard of living seems to have been raised by this microfinance loan?
Exactly the same cannot be said because we have not conducted a survey. But looking at the past experience, it can be said that out of 19,000 members we have, about 11,000 have worked with loans. About 70 percent of the customers who make good use of 100 percent loans can be considered to have raised the living standards of 7,700 households.
Have you come up with any such plan for the convenience of Holan customers?
At the start of Kovid, we distributed healthy items to each member. Similarly, for the convenience of customers, we have arranged to send messages on mobile. In addition, corona prevention and related informational messages are delivered directly to the center via telephone and currently after the lockdown. We arranged for an emergency loan to help lift some of the deadlock.
The issue of merger has been given a good place in the monetary policy. Are you also planning to merge with any institution?
Of course, we will go according to the policy of Nepal Rastra Bank. We have already signed an agreement with Global IME MFI, headquartered in Beshishahar Municipality, Lamjung District, to go for acquisition.
Nepal Rastra Bank has set interest rate limit for microfinance in the current monetary policy. Doesn’t it make you uncomfortable to work?
Due to the high liquidity situation in the market these days, the interest rate on loans we receive or take is 5 to 7 percent. However, this situation cannot last forever. Demand for this specialty has grown significantly as a result of recent corporate scandals. When the demand for credit increases, it increases in all sectors at once. And then the interest rates on the loans we take out start to rise. In such a situation, the current interest rate limit cannot support microfinance.
Until a few months ago, the average loan cost was 12-13 percent. If the same situation occurs again, the spread rate will shrink by an average of 3 percent. While the operating cost of microfinance institutions is more than 4 percent. Microfinance customers would have benefited more if the Nepal Rastra Bank (NRB) had set a limit of at least 7 percent spread on the interest rates charged by commercial banks, development banks and finance companies. We are very happy that Nepal Rastra Bank has reduced the interest rate to 15 percent from this year.
Microfinance workers were seen as institutional moneylenders, feudal lords, profiteers, etc., which made it difficult for our employees to go to the field and work with their heads held high. If the National Bank of Nepal (NBN) makes the interest rate of our loan cheaper and gives it at 3-4 percent on average, we can give loan at 10-12 percent and we are ready for that.
What are the current strategies and plans of the organization?
We are going for acquisition with Global IME MFI. Our future strategies and plans will be as decided by Global IME Microfinance. Especially in line with the recent monetary policy and the policy of Nepal Rastra Bank, merger and acquisition will be given first priority considering business expansion. In the next few years, we have taken a strategy to move forward with the objective of becoming the leading microfinance institution in Nepal.