Dividend season has begun in Nepal’s microfinance sector, but the payouts are turning out to be more cautious than many investors expected.
So far, only 12 microfinance institutions listed on NEPSE have announced dividends from last fiscal year’s profits. This is a small number considering that there are 48 active microfinance companies in the market. Two more institutions are currently under merger, so their shares remain suspended from trading.
Microfinance companies are usually known for offering attractive dividends. However, in recent years, Nepal Rastra Bank has tightened the rules because of rising non performing loans. As a result, companies now have to follow strict limits based on their capital adequacy ratio and NPL level before announcing dividends.
According to the central bank, any microfinance institution with an NPL above 15 percent is not allowed to distribute dividends at all. Based on the latest financial statements, Nirdhan Samriddhi Laghubitta and NIC Asia Laghubitta fall into this category, which means their shareholders will not receive any dividend this year.
For institutions with lower NPLs, dividend limits vary. Companies with less than 5 percent NPL can distribute up to 25 percent dividend, but only if their capital adequacy ratio is above 12 percent. As NPLs rise or capital weakens, the allowed dividend rate drops sharply.
On paper, only eight microfinance institutions meet the regulatory conditions to distribute the maximum 25 percent dividend. But when actual distributable profit is considered, only three companies truly have the financial strength to do so. Among them, Chhimek Laghubitta is the only one that has proposed dividends close to its full capacity. Sana Kisan and Jeevan Bikas, despite having the ability to distribute 25 percent, have chosen a safer 15 percent payout.
A similar trend can be seen across other categories as well. Several institutions that are allowed to distribute up to 20 percent or 15 percent dividends have proposed lower rates than what regulations permit. Some companies that could distribute 15 percent have limited their proposal to just 10 percent, while a few eligible for 10 percent have announced even smaller payouts.
Only Himalayan Laghubitta has announced dividends in the group eligible for up to 10 percent, proposing just 7 percent. Meanwhile, a few institutions with weaker financial indicators are restricted to a maximum of 5 percent dividend.
Overall, the picture is clear. Even when regulations allow higher dividends, many microfinance institutions are choosing to stay conservative. Rising credit risk, pressure to strengthen balance sheets, and regulatory scrutiny appear to be pushing companies to prioritize stability over aggressive payouts.
For investors, this dividend season is less about big numbers and more about understanding which institutions are preparing for long term sustainability.
