What do you guys think about Microfinance companies?

Do you think it’s too risky to invest in?

Personally I’ve found these companies to have massively increased their profitability over the years and bull market ma jasto company ni ramro badcha.

I’m planning to invest a significant portion of my portfolio in microfinance companies like ILBS, GMFBS, USLB, and some other. I have found these companies to have ample space for growth and could be highly profitable in the upcoming bull market.

View on r/NepalStock by sockholder


  1. I won’t name the microfinance but there are 4 or 5 microfinances with better financial positions. Their business model makes them highly susceptible to increased NPL. One of the prominent microfinances whose NPL was below 1% was risen to about 9% after merging with another. You should be very wise choosing the stocks.

    As of my experience, I now only trade with microfinance, particularly one. I was a naive while starting and my stocks went up to 30% max loss. I however, bought the stock at the lower prices, thus averaging the price. With all the bonus shares, now I am more than 12 percent of profit. But of course, I did both short and long position to make profits.

    Only problem in trading is, there are very few people to willing to trade stocks, thus not driving the price as it should. But if you understand when to sell and when to buy, it’s not bad. Also, you get proper return annually. I don’t know the recent new rule about 15% max dividend. But anyways, it’s still more than what you get from bank accounts.

  2. Before finding microfinance as a valuable sector, you have to have an understanding of how microfinance companies create value for shareholders aka earn profit.

    The maximum internet rate microfinance companies can charge their clients is 15% on loan. It has been capped and cannot be breached at any cost. Where do microfinance companies get funds to give out loans ? They get it from commercial banks. Commercial banks give funds to microfinance at base rate ( I am confused if they get funds at base rate or a little higher than base rate ). So basically what they earn is 15% – Base rate. And within this spread they have to cover their operating cost and also absorb provisions.

    In a high interest rate environment, the base rate of commercial bank is high, which means the cost of fund of microfinance is high. A high interest rate environment is met with lower credit growth and high non performing loans. Hence the absolute net spread microfinance companies can enjoy is very miserable in a high interest rate environment. NPL has been a severe issue with microfinance companies recently.

    High rates = high cost of funds which cannot be transferred to end customer = low net interest income

    Higher rates = higher npl = higher provisioning= lower profit.

    Hence the dividend capacity of microfinance companies is very miserable lately. So from this perspective this isn’t a lucrative sector at all, having said that during a market upward trend even shit companies gain momentum, but the truth is fundamentals don’t justify the price .

    However, if you really want to get into this sector, the scripts I’ll recommend is cbbl, nmfbs, nesdo, rmdc, etc .


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