While the profits of majority of MFIs are decreasing, which MFIs made it to the top this quarter?

Wed, May 16, 2018 3:26 PM on Exclusive, Financial Analysis, Stock Market,

In a developing country like Nepal, where majority of population still lacks a proper access to finance, microfinance and co-operatives have been designed to fulfill the need of such population. In Nepal, there are 35 listed microfinance companies and few non listed microfinance companies excluding 2 microfinance companies that have just listed/allotted their shares for public. The objective of microfinance institute of the country is to provide access of finance to the bankable poor and entrepreneurial poor. However, the dark side of microfinance sector in Nepal lies on the fact that most of these remain concentrated in urban areas of the country. 

The majority of microfinance institutes have published their third quarter report as of 2074/75. The overall analysis of majority of indicators such as paid up capital, reserve and surplus, net profit, Earning per share (EPS), PE ratio, Net worth per share, Non-performing loan promotes investor’s understandings on performance assessment of these microfinance units.

The further analysis has discarded the newly listed microfinance institutes Aarambha Microfinance and Nepal Seva Laghubitta. The non-listed microfinance institutes are also not compared with the listed microfinance institutes.

 

Paid-up capital: The central bank has directed national level, regional level and district level microfinance institutes to increase their paid up capital requirement. The national level microfinance institutes should have the paid up capital of Rs 100 million, regional level microfinance of Rs 60 million and finally, district level microfinance of Rs 10 million. The microfinance institutes with highest paid up capital are:

  1. Nirdhan Uthan Bank Limited with a paid up capital worth Rs 1 arba
  2. Chhimek Laghubitta Bittiya Sanstha limited with a paid up capital worth Rs 1 arba
  3. Rural Microfinance Development Centre Limited with a paid up capital worth Rs 72.67 crore

Reserve and surplus: The microfinance institutes are required to serve the riskiest category of the country. So, a reserve and surplus can be useful at times of crisis. The microfinance institutes with highest amount of reserve fund are as follows:

1. Rural Microfinance Development Centre Limited with a reserve of Rs 135.70 crores

2. Sana Kisan Bikas Bank Limited with a reserve of Rs 125.65 crores

3. Nirdhan Uthan Bank limited with a reserve of Rs 108.24 crores

Also, Support Microfinance Bittiya Sanstha Limited (SMB) has a negative reserve of Rs 0.10 crores.

Net Profit: As of the third quarter report of FY 2074/75, the listed microfinance institutes with the highest net profit are:

1.Nirdhan Uthan Bank limited with a net profit of Rs 39.91 crores

2. Chhimek Laghubitta Bittiya Sanstha limited with a net profit of Rs 35.81 crores

3. Sana Kisan Bikas Bank limited with a net profit of Rs 27.84 crores

The microfinance institute working in loss is Support Microfinance Bittiya Sanstha Limited (SMB) among the listed microfinance institutes and Nagarik Microfinance Limited among the unlisted microfinance units.

Net worth per share: Net worth per share can be defined as an expression for net assets value per share. The microfinance institutes with the highest net worth per share are as follows:

1. Mahuli Samudayak Laghubitta Bittiya Sanstha Limited with net worth per share of Rs 365.20

2. Forward Community Microfinance Bittiya Sanstha Limited with a net worth of Rs 323.41

3. Sana Kisan Bikas Bank limited with a net worth of Rs 299.81.

Earnings per share: The increment of paid up capital has influenced the EPS of majority of microfinance institutes. Yet some of the microfinance institutes have demonstrated higher level of EPS such as:

1. Forward Community Microfinance Bittiya Sanstha Limited with an EPS of Rs 94.67

2. National Microfinance Bittiya Sanstha Limited with an EPS of Rs 66.58

3. Mirmire Microfinance Development Bank Limited with an EPS of Rs 62.86

Support Microfinance Limited and Nagarik Microfinance Limited have negative EPS due to the negative profit.

PE ratio:  The general rule of thumb in finance believes the least PE ratio is better for investors. So, following the general rule, the microfinance institutes with least PE ratio are:

1. Rural Microfinance Development Centre Limited with a PE ratio of 20.81 times

2. Sana Kisan Bikas Bank limited with a PE ratio of 20.85 times

3. Unnati microfinance Bittiya Sanstha Limited with a PE ratio of 21.08 times

 

Based on the provided analysis, if you have any microfinance of your preference, here is the list of LTP as of 15th May, 2018 for your investment:

The microfinance institutes have to face a trade off when it comes to their profitability and outreach to the bankable poor. Dear readers, do you think microfinance institutes in Nepal have the capability to develop innovative products for the bankable poor? Why do you think many people in rural areas still lack access to finance although the microfinance industry is rapidly mushrooming? Please write your opinions in the comment section below.

(Disclaimer:  Any kind of information that is provided in the article should not be used as a sole advice or recommendation by investors in order to design their investment portfolio. So, before taking steps for any kind of the information, the investors are required to base their judgment on their own financial analysis, appropriateness of the information and seek independent financial advice. The information of the company has been taken from the authorized sources such as website of the company, NEPSE, financial reports and press releases of the companies so, any changes not updated in these may differ in the analysis.)