Kathmandu: The Nepal Rastra Bank (NRB) has released a study report stating that the condition of microfinance institutions in the country has deteriorated due to their excessive focus on profit-making, weak internal control mechanisms, and poor institutional governance.

The study conducted by the central bank highlights various challenges facing the microfinance sector, including a lack of training for employees, a heavy concentration of microfinance institutions in urban areas, and limited access to rural communities.

The report identified several issues affecting the microfinance sector, such as excessive loans to a few clients, a weak credit discipline, economic slowdown, and a deviation from organizational goals, which collectively put pressure on microfinance institutions.

The report provides over 180 recommendations across 20 main themes for both the short-term and long-term. Key recommendations encompass areas like the credit system, interest rates, microcredit, target communities, customer protection, and internal control mechanisms.

In addition, the report points out the increasing pressure on microfinance institutions due to declining profits and a rise in non-performing loans, with the non-performing loan ratio exceeding 7% in the last fiscal year, compared to less than 3% in previous years.

The distribution of microfinances has mainly focused on the relatively economically developed regions, with a high number of branches in the Tarai districts and lower presence in remote and mountainous districts. Furthermore, several districts have a high concentration of microfinance institutions based on credit, branch, and other indicators.

In response to the issues raised and public concerns about microfinances, the Nepal Rastra Bank established a seven-member study committee led by its Executive Director, Dr. Prakash Kumar Shrestha, to assess the state of the microfinance sector and provide recommendations for its improvement.