The Nepal Rastra Bank (NRB) has issued a new directive requiring microfinance to determine loan interest rates based on their base rate starting from Shrawan 1. This move is aimed at promoting transparency and preventing excessively high interest charges on borrowers.
Under this rule, microfinance are allowed to add a maximum of 3 percentage points as a premium to their base rate when setting interest rates. The base rate used must be the average of the last three months, and the premium should be added to this average to determine the final loan interest.
To prevent microfinance lenders from charging more than what is reasonable, NRB has also enforced a comparative cap. The final interest rate charged by microfinance institutions must not exceed the rate calculated by adding 9 percentage points to the average base rate of commercial banks. Among the two rates — internal base rate plus 3% or commercial bank base rate plus 9% — the lower rate must be used.
Microfinance are also required to submit their base rate to NRB within 15 days after the end of each month and publish it on their website to maintain transparency.
Additionally, NRB has instructed that any penalty or late payment interest included in loan agreements should not exceed 2% per year. This measure further ensures fair lending practices and protects customers from excessive charges.
