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3. Wholesale Lending

Introduction

The core function of RMDC is wholesale lending to retail microfinance institutions which provide micro-credit to the poor households. RMDC has been striving to build partnership with the existing financial intermediaries, microfinance financial institutions and cooperatives to extend its services in the nooks and corners of the country.

Process of Lending to MFIs

• RMDC offers wholesale loan funds to institutions holding a valid license to implement microfinance program, such as specialized microfinance development banks (MFDBs), savings and credit cooperatives (SCCs) and financial-intermediary NGOs (FI-NGOs) or any financial institution legally allowed to implement a microfinance program within the operational frame work of the Central Banks Directives and Bank and Financial Institutions Act 2006.

• To get a loan fund, an eligible MFI should apply along with a set of listed documents to RMDC. Loan application is processed on the basis of submitted set of documents and RMDC makes an off-site and on-site investigation report of the applicant institution. After making a detailed appraisal report and recommendation, the decision of loan approval or disapproval is taken. Business plan and institutional capacities of the MFIs are also taken into consideration while determining loan size and repayment schedule. MFI has to agree on the necessary terms and conditions stipulated on the offer letter and sign the legal agreement by both parties (including RMDC), then RMDC releases the approved loan amount on installments.

• RMDC makes off-site and on-site monitoring status report of the borrower MFIs to ensure that the disbursed loans are being properly utilized by the MFIs and the institution’s overall operation of microfinance program as well as financial progress are on right track.

• RMDC charges an annual interest rate of 2-8% on its loans disbursed to MFIs. The borrower MFIs are free to set their own lending rates to their clients. However, RMDC advises them to have an appropriate interest rate.

• Normally for the first loan and second loan the term is two years and three years respectively and for the subsequent loans based on the previous repayment records of the MFI and the type of loan. A grace period of three to six months is given to each loan for repayment.

• About repayment of loan installments, the MFIs have to repay the interest dues and the principal installments quarterly.

   

Progress of Lending Program

RMDC is the first and largest wholesale lending institution in terms of its share in the wholesale microfinance sector in Nepal. It had approved Rs.15.45 billion and disbursed Rs.13.98 billion of loan amount to 228 retail MFIs operating in 68 districts of the country till mid-July 2015. The borrowing institutions include 18 microfinance development banks (MFDBs), 10 development banks (DBs), 24 financial intermediary NGOs (FI-NGOs) and 176 cooperative societies. RMDC’s loan outstanding balance with its partner organizations (POs') at the end of the fiscal year 2014/15 was Rs. 4.05 billion.

RMDC has been able to maintain excellent loan portfolio quality with a hundred percent loan recovery rate from the first year of its operation. RMDC has been adopting prudent lending criteria & process and carrying out close supervision and follow up of its partner organizations for the quality portfolio and quality microfinance. The POs are also advised to follow the best practices of microfinance so that they can deliver quality service and have high-quality portfolio. With the joint effort RMDC’s POs has also been maintaining near to hundred percent loan recoveries.

The portfolio growth of RMDC is at an increasing trend with exception in the FY 2011-12. The annual portfolio growth of RMDC of the last five years has been portrayed below.

RMDC has been making untiring effort persistently to expand microfinance operation in the hills and mountain districts across the country to give the financial access to the poor dwelling over there. It is imprinting the steps on the stones of those high lands and isolated geographical with its onsite visits to identify potential local cooperative societies, build their institutional capacities and give start-up fund to commence microfinance operation to change life of the people with the financial access to them. RMDC also encourages its larger POs to expand their microfinance operations in the hitherto un-served areas by providing them with one million rupees of loan fund per branch at 2% interest rate. Through its existing and new partners, RMDC has expanded its operation to most of the remote hill and mountain districts. RMDC has been visional on covering total districts of Nepal with microfinance program. So it is now determined to reach the districts, Humla, Bajura, Mugu, Dolpa, Manang, Mustang and Solukhumbu not yet reached by its POs.