From the financing mix of these MFIs, borrowing is the most critical component of financing. It covers about 76% of total resource mobilization. The members savings comes next followed by equity.
As per latest data, the financing structure of MFDBs and FINGO has, borrowings:74.5%; saving:17.4% ; institutional capital:8.1%. For SACCOs and SFCLs, borrowings:20%, Saving:77%, and institutional capital:3%.
The study of partner MFIs of RMDC revealed MFIs were able to raise 38% of the fund from members Savings, about 30% RMDC and rest from the commercial banks and their equity .
Savings: According to data from the main MFIs, the saving to loan ratio in these institutions varies from 27.18% to 71.05% and approximately one third of lending requirement is met through savings.
Borrowing: Rural Microfinance Development Centre Ltd. (RMDC), Sana Kisan Bikas Bank Ltd. (SKBBL) and Nepal Rastra Bank- Rural Self Reliance Fund (RSRF) are the major sources of wholesale funding to MFIs in Nepal. In addition commercial bank and financial institutions lend to microfinance providers under DSL scheme.
RMDC: Since the establishment of the Rural Microfinance Development Center Ltd. (RMDC) in 1998 (which started its operations in January 2000), the number of partner MFIs increased steadily from eight in July 1999 to 60 in July 2008 and to 86 by June 2010 (7 MFDBs, 9 Development Bank, 46 SCCS, 24 FINGOs). RMDC provides wholesale loans at 6% interest per annum for general loans and at 5% per annum for livestock loans under the Community Livestock Development Project. Over 75% of loans are disbursed to MFDBs and FINGOs.
SKBBL: This is a specialized wholesale microfinance development bank established with the aim of promoting and strengthening grassroots level Small Farmer Cooperatives Ltd. (SFCLs) in particular and similar other microfinance intermediaries in general. It charges an interest rate of 9.5% per annum.
RSRF: The government of Nepal established RSRF in 1991. RSRF lends to SFCLs, Cooperatives and FINGOs at the interest rate of 8.0%, however, 7% of the interest rate charged by the RSRF is paid back to the respective institution for its development if the borrowing institutions repay the principal and interest in a timely manner. Thus, the net interest rate stands at only 2%. This has distorted the market rate to some extent. The ceiling of credit to the SACCOs and NGOs is 10 times or their total savings/ or share capital or a maximum of Rs 1 mn which ever is lower. Only four FINGOs have received credit funds from RSRF out of total 334 recipient institutions by mid-July 2008 .
Another important source of financing for MFIs is Commercial Banks. They provide wholesale funding to MFIs under the DSL Scheme. As per NRB directives, DSL mandatory lending obliges commercial banks (class “A” financial institutions) to lend at least 3% of their portfolio to the deprived sector, while class “B” development banks and class “C” finance companies are obliged to lend 1.5% to the deprived sector. They can either lend directly small loans to clients, lend to MFIs or invest in the equity of such MFIs. A penalty equal to the highest interest rate charged on loans is to be imposed on any of the banks that do not meet the prescribed requirements. The commercial banks charge 3-6% interest per annum on wholesale loans to MFIs depending on the urgency of their disbursement to meet the 3% deprived sector lending requirement. They extend loans to MFIs generally for one year and further extension or renewal is made for another one year after the expiry of each loan. However, currently banks have revised their deprive sector lending rate to 6-9%) which is the very higher rate for the MFIs.As of July 2009, total funding available under DSL is USD 199 mn of which 50% is channeled to class “D” microfinance development banks.