Nepal Rastra Bank has issued a new circular on dividend distribution for microfinance institutions. Under the new rules, any microfinance company with more than 15% Non-Performing Loans (NPL) will not be allowed to give dividends.
When declaring dividends, institutions must follow NRB’s set limits based on their Capital Adequacy Ratio (CAR) after dividend payout and their latest NPL ratio at the end of Ashad.
For institutions with CAR above 12%:
- NPL up to 5% → Can give up to 25% dividend
- NPL between 5% and 10% → Can give up to 20%
- NPL between 10% and 15% → Can give up to 15%
For institutions with CAR between 10% and 12%:
- NPL below 5% → Up to 20% dividend
- NPL between 5% and 10% → Up to 15%
- NPL between 10% and 15% → Up to 10%
For institutions with CAR between 8% and 10%:
- NPL up to 5% → Up to 15% dividend
- NPL between 5% and 10% → Up to 10%
- NPL between 10% and 15% → Up to 5%
Previously, if a microfinance institution proposed more than 15% dividend (bonus or cash), it had to put 50% of the excess amount into a general reserve fund.
NRB has also reminded that any licensed microfinance company that has not met the minimum paid-up capital requirement cannot declare cash dividends (except for tax purposes on bonus shares).
Additionally, retail-focused microfinance institutions must follow set loan limits:
- Up to Rs 3 lakh per person for those going abroad for employment
- Up to Rs 5 lakh for women borrowers
