Some micros have CD of greater than 500. Wasn’t the whole point of CD / CCD was to curtail the leverage?

More at: r/NepalStock by roshamns

  1. MF’s business model relies on borrowing from bigger BFI’s and lending to consumers on a higher interest while profiting from that interest spread. They have a very very small to no core deposit base unlike A class institutions and they are not very concerned with increasing their deposits anyways. Unlike Deposit driven banks(concerned with keeping their cost of funds as low as possible which they use to fund commercial loans),

    MFs profitability is determined by loan volume(obtained through higher cost funding sources). So they are bound to operate with loan to deposit ratio north of 100%.

    TL;DR: They have a very small deposit base and are not very concerned with increasing deposits. More concerned with increasing volume of loans funded from borrowing from bigger BFI’s.

  2. CD ratio is concerned with only A.B.C class BFis. The major source of fund for Microfinances is borrowings from other microfinances, banks and their members, not the deposits. CD/CCD ratio does not concern them.

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