Kathmandu. Executive Director of Nepal Rastra Bank (NRB), Guru Prasad Poudel, has said that microfinance sector was essential for the country’s economic system.

Inaugurating the Fifth National Microfinance Member’s Conference here today, Finance Minister Khatiwada said that only microfinance companies could provide loans without collateral and small size in the areas where commercial banks could not reach. However, he said that the main challenge is the increase in bad loans in recent times.

Acknowledging the shortcomings of the past, Poudel pointed out that the main mistake was the failure to give loans to unnecessary people and not to understand the difference between microfinance and cooperatives. He said that in the context of the 15 percent interest rate cap set by the Nepal Rastra Bank, the charge of ‘meter interest’ should be countered by reaching the villages.

Director Poudel said that the government and NRB could not think of alternative to microfinance and stressed the need of further strengthening it. He said that there is no exemption for microfinance institutions to collapse or collapse as about 2.7 million 8,000 people are dependent on this sector and more than 23 billion rupees have been borrowed from commercial banks.

The merger policy has been adopted to improve the sector, due to which the number of institutions has come down from 91 to about 49. Similarly, a borrower cannot take loans from more than two institutions and a maximum limit of Rs 7 lakhs has been set.