Kathmandu. The financial condition of Bijaya Laghubitta Bittiya Sanstha Limited is deteriorating. With the irregularities in the flow of loans, the bad loans of this microfinance company have increased by almost 50 percent in a period of one year.
The total non-performing loan of the company has increased from 7.6 percent in the previous fiscal year to 13.6 percent in the last fiscal year.TAG_OPEN_p_16
The credit rating agency ICRA Nepal (ICRA Nepal) has recorded a downward fall in the financial strength of Bijaya Laghubitta. ICRA Nepal has downgraded the issuer valuation of Bijaya Laghubitta and continued to monitor it with negative impact. The rating of the organization has dropped from ‘B’ Plus to ‘B’ rating (ICRA NP IR). This assessment indicates that there is a high risk to its ability to meet its financial obligations in a timely manner.
ICRA Nepal attributed the downgrade in the rating to the deteriorating credit quality of the institution over the years. Due to the negligence of the management, the rate of new loans turning into bad loans has increased alarmingly.
In addition, the number of loans that have expired interest installments has also increased from 28 percent to 33 percent. This shows the pressure on debt recovery. On the other hand, ICRA Nepal has said that the rapid trend of new loans has further weakened the asset quality of the institution.
The capital adequacy ratio of the company had come down to 9.6 percent in September last year.TAG_OPEN_p_15 Even if this ratio is above the minimum of 8 percent, it is considered weak in terms of risk tolerance. The ratio of net NPA to net worth has reached around 88 percent during the review period. This shows the direct impact that debt can have on capital.
This microfinance company has insured 98 percent of the loans issued.TAG_OPEN_p_14 ICRA Nepal said that uncertainty over timely receipt of insurance claims has posed additional challenges to the solvency and liquidity of the company.
There is a tendency for microfinance companies to insure micro loans on behalf of both deposits and credit protection funds and insurance companies.TAG_OPEN_p_13 In case of loss of loan due to the death of the insured, the insurance company has been recovering the principal and interest of the loan from the claim amount. If the loan is not recovered due to any other reason, they take compensation from the fund.
Meanwhile, the average size of loans given by institutions is also higher than the average of the microfinance sector, which increases the risk.TAG_OPEN_p_12 The average loan size has increased from Rs 1,55,000 to Rs 1,73,000. Such a large loan size is even more risky in the face of economic slowdown.
Structural risks such as regulatory changes, competition, and increasing lending among borrowers have also added challenges to the microfinance sector.TAG_OPEN_p_11
