Microfinance Dividends in Nepal: New Guidelines from NRB
Are you following the financial sector news in Nepal? Recent updates from Nepal Rastra Bank (NRB), the central bank of Nepal, are impacting the microfinance institutions (“Gha” class microfinance institutions). These new regulations are all about dividend distribution and how it’s calculated based on key financial metrics. Let’s break down the changes in this financial update.
The revised guidelines within the integrated directives, 2081, set new thresholds for microfinance companies when it comes to distributing dividends. Key factors include non-performing loans (NPL) or **bad debts and capital adequacy ratio.
Here’s a simplified overview:
- Healthy Institutions: Microfinance institutions with non-performing loans below 5% and a capital fund ratio exceeding 12% can distribute up to 25% in dividends.
- Mid-Range Performance: Institutions where the capital adequacy ratio is above 12%, but NPLs are between 5% and 10%, can offer up to a 20% dividend.
- Further Guidelines: Institutions with the above-mentioned capital adequacy but with NPLs between 10% and 15%, can provide up to 15% in dividends.
Even with a capital fund ratio between 10% and 12%, the microfinance company can distribute dividends if the non-performing loans are managed. This means the bank can still give out dividends to shareholders.
Key Considerations for Microfinance Institutions:
- NPL Thresholds: No dividend distribution is permitted if NPLs are greater than 15%.
- Cash Dividends: If a microfinance institution proposes cash dividends, they must maintain a minimum capital fund ratio of 9%.
- Minimum Paid-up Capital: Those microfinance companies that do not meet the minimum paid-up capital requirements set by the NRB can only distribute dividends in the form of bonus shares.
These new rules from the NRB are designed to encourage sound financial management within the microfinance sector while rewarding institutions that are performing well. These guidelines are an important step in strengthening the financial stability and promoting responsible lending practices. Stay informed about the latest financial news as the Nepali economy continues to evolve.
