Microfinance Institutions in Far West Locked Down Over Excessive Interest Rates

Dhangadhi: Multiple branch offices of Micro-Financial Sanstha Limited operating in the Far West region are being progressively shut down. Five microfinance branch offices in Achham via Kanchanpur and Darchula have already been locked, with indications that other microfinance institutions will face a similar fate.

Protests have erupted against microfinance institutions within the province, with borrowers accusing them of subjecting them to exorbitant interest rates and financial burdens. As borrowers who have taken loans from these microfinance institutions struggle to cope, many find themselves on the verge of defaulting or unable to make deposits. Operating microfinance in the current circumstances poses an increased risk to the institutions themselves.

Members of a youth organization associated with the Nepal Communist Party (NCP), led by Netravikram Chand, had previously locked two microfinance institutions in Shailyashikhar Municipality-9 Gokuleshwar in Darchula. The Gokuleswar-based microfinance and poor microfinance institutions were the initial targets of the lockdown. They allege that Laguvitta has inflicted mental stress and hardship on ordinary individuals by offering loans with high interest rates. The locking down of these financial institutions serves as an initial warning.

It has been reported that microfinance institutions impose cyclical interest charges, enforce a 15 percent service fee on damages for women entrepreneurs, and demand repayment within a strict 15-day timeframe. Additionally, they have been known to seize items such as televisions, goats, chickens, and even buffaloes from borrowers' homes. Borrowers are also subjected to mental torment when they request more time for repayment. Earlier, the office of National Microfinance Laguvitta Fiscal Sanstha Limited in Suda, Kanchanpur, was also locked.

The Nepal Communist Party (majority faction) locked down the financial institution, citing five specific reasons. Laghubitta was accused of charging high interest rates from consumers, mistreating borrowers during the collection of installments, deceiving and causing distress to consumers through various incentives and schemes. The decision to lock the institution was made due to their practice of retaining the savings book within the organization.

Similarly, the Nepal Communist Party Biplav faction locked down two microfinance institutions in Achham. The local branch and the office of NMB Microfinance Financial Institution in Sanfebagar Municipality were both locked on Sunday. The microfinance institutions were accused of imposing high interest rates, failing to maintain single-digit rates as required, pressuring borrowers to leave their villages or even the country, and driving some individuals to commit suicide. Furthermore, they were accused of refusing to return savings, engaging in fraudulent financial transactions, and disregarding the directives of the Nepal Rastra Bank by not removing service fees, insurance fees, and other charges.

Nirash Shahi, the secretary of Biplav Achham, stated that the Nepal Communist Party has indefinitely locked these institutions. He emphasized that microfinance institutions appear to be overly focused on providing unsecured loans, disregarding crucial criteria such as assessing the borrowers' utilization of funds, their ability to repay, or whether they have already borrowed from other institutions.