How does the monetary policy benefit microfinance companies?

Nepal Rastra Bank, through monetary policy of FY 2074/75, has brought forward several provisions that will positively affect microfinance institutions and their profitability. Decreased Competition with commercial banks As per the monetary policy, commercial banks are no longer required to directly lend 2% of their loan portfolio to deprived sectors. The 2% may seem a small amount, but when compared to overall loan portfolio of all commercial banks, the amount is high. Until the end of June 2017, the commercial banks had to provide more than Rs 33 arba to deprived sectors directly, which can now be forwarded through microfinance companies. Likewise, NRB has continued the existing provision for commercial banks to lend 5% to deprived sectors. Banks can now lend this money through microfinance institutions. Increase in funds will decrease cost of funds of microfinance companies and eventually improve their profitability ratios. NRB has also continued the provision for development banks to provide 4.50% and finance companies to provide 4% to deprived sectors. Interest-free borrowing NRB has also continued the incentive in which it will provide Rs 40 lakh borrowing to microfinance companies for opening branch in the specified 22 remote districts (except in district headquarters). Remote districts: Manang, Humla, Dolpa, Kalikot, Mugu, Jajarkot, Bajhang, Bajura, Darchula, Okhaldhunga, Jumla, Achham, Baitadi, Rukum, Salyan, Bhojpur, Mustang, Rolpa, Taplejung, Khotang, Rasuwa, Solukhumbu New license discarded Nepal Rastra Bank will now not issue new license to any microfinance institutions. This will also help control competition among the institutions. Overall, the monetary policy has favored microfinance institutions. Although NRB did not directly instruct them to increase their paid-up capitals, the provisions it has brought will indirectly compel them to increase their capital. In a way, NRB has put forth new provisions to groom microfinance companies and help them increase capital in their own accord.