Central bank cracks down on over a dozen microfinance institutions; Corrective action ordered for NADEP and Abhiyan

KATHMANDU: Nepal Rastra Bank has taken regulatory action against more than a dozen microfinance institutions (MFIs) during the second quarter of the current fiscal year 2025/26 (FY 2082/83 BS), citing non-compliance with prudential directives and supervisory standards.

According to the central bank, NADEP Microfinance and Abhiyan Microfinance have been subjected to prompt corrective action under the provisions of the “Prompt Corrective Action Bylaws, 2017 (2074 BS), Clause 3(a),” signaling serious supervisory concern over their financial and operational health.

In addition, the regulator has issued formal notices to several institutions—including Forward Microfinance, Samudayik Microfinance, Unique Microfinance, and Matribhoomi Microfinance—regarding deficiencies in maintaining required capital adequacy and capital fund standards.

Meanwhile, Sanjeevani (Super) Microfinance, which had previously been declared problematic under Clause 3(d), has now been released from that status after improvements in its condition.

Interest Rate Violations and Regulatory Breach

The central bank also flagged non-compliance related to deposit and savings interest rates. As per the unified directive 2082, MFIs are required to maintain a minimum deposit/savings interest rate equivalent to at least 50% of their maximum lending rate.

However, Kalika Microfinance, NADEP Microfinance, and Atmanirbhar Microfinance were found violating this provision. NRB has initiated further action and directed these institutions to ensure full compliance.

Supervisory Reporting and Data Gaps

On regulatory reporting, NRB noted that while all MFIs have submitted required financial statements up to mid-January 2026 (Poush-end), several institutions failed to report data through the Supervisory Information System.

Notably, Abhiyan Microfinance, Nerude Mirmire Microfinance, and Sanjeevani (Super) Microfinance have not submitted any data, while Srijansheel Microfinance and Unnati Sahakarya Microfinance reported only partial data. The central bank has instructed these institutions to ensure regular and complete reporting.

Asset Quality and Rising Non-Performing Loans

The report highlights growing stress in the microfinance sector:

Non-performing loan (NPL) ratio has reached 9.99% of total loans
Total loan loss provisioning stands at 5.17% of total portfolio
MFIs have maintained NPR 33.40 billion (3.34 अरब) in loan loss provisions
Equivalent to 6.63% of total loans
Covering 66.38% of non-performing loans

Provisioning norms remain as follows:

1% for performing loans
5% for watchlist/restructured loans
25% for insured loans
25%, 50%, and 100% for substandard, doubtful, and bad loans respectively
Compliance in Key Prudential Indicators

Despite enforcement actions, NRB reported compliance in several key areas:

All MFIs have adhered to the limit of mobilizing funds up to 30 times core capital
Collateral-based lending remains within regulatory cap, at 14.82% of total loans (below one-third limit)
Mandatory one-third lending to agriculture sector has been met by all institutions
Statutory Liquidity Ratio (SLR) requirements have been fully complied with

However, under the Cash Reserve Ratio (CRR) requirement—0.5% for non-deposit MFIs and 2% for deposit-taking MFIs—Sanjeevani (Super) Microfinance was found non-compliant, while others met the standard.

Regulatory Signal to the Sector

NRB’s latest action reflects tightening oversight amid rising credit risk and operational weaknesses in Nepal’s microfinance sector. The central bank appears to be shifting toward a more interventionist regulatory stance, focusing on early warning signals, capital discipline, and data transparency.

The move is expected to have significant implications for financial stability, investor confidence, and the long-term sustainability of Nepal’s microfinance industry, which plays a critical role in financial inclusion and rural credit delivery.