By Shanker Man Singh Recently, according to some social networks and financial online, it has become public knowledge that the task force formed to address the demands of the microfinance victims has prepared a report to increase the loan rates to borrowers who are in trouble. In the past, a member of the working group prepared a report with a suggestion to increase the loan rate to borrowers who were in trouble due to circumstances such as Covid, but the report was not made public. In addition, there is also a suggestion to increase the loan rate for those who are unable to work due to the death of a member of the debtor's family, who are unable to work due to disability. It is suggested to extend the repayment period up to 3/4 years after looking at the condition of the borrowers. It is also suggested to give more loans to those who have the zeal to work. In the past, Nepal Rastra Bank published a study report on the problems and solutions of microfinance financial institutions. As the problems in the microfinance sector increased and the borrowers began to protest, the Nepal Rastra Bank Board of Directors formed a seven-member study committee last year under the coordination of the Executive Director of the Economic Research Department. The committee reported 181 recommendations focusing on 20 main areas to solve the problems seen in the microfinance sector. With the rapid expansion of the microfinance sector, various problems have started appearing in the past few years. This study report has pointed out that microfinance financial institutions have created a situation of target deviation by emphasizing only profit, weak internal control system, weak institutional governance and excessive debt to customers along with multi-banking as the main problems. Similarly, it is mentioned in the report that lack of training for employees, problems in customer abuse and protection, lack of access to remote areas while focusing only on accessible areas, and problems in the microfinance model are mentioned in the report. Under the Nepal Rastra Bank and Financial Institutions Act, 2063, a microfinance financial institution is a 'D' category licensed institution from Nepal Rastra Bank. Currently, there are more than 65 microfinance financial institutions in Nepal. The microfinance institution collects regular savings from the poor and low-income people and women as members and provides micro-loans without collateral to run agricultural and micro-enterprise businesses on a collective basis. Likewise, mortgage loans are provided to group members and individual members to run small enterprises and small businesses by taking acceptable mortgages. Microfinance institutions especially provide unsecured loans. Microfinance institutions provide financial literacy to remote villages in Nepal. They have been providing financial services such as providing financial education, collecting savings, giving unsecured loans, and giving loans with collateral. Although many programs have been implemented to reduce poverty in Nepal, microfinance programs are only based on poor and rural areas. Microfinance banking services guide people living in rural and semi-urban areas to facilitate and secure financial services and agricultural production. The introduction of microfinance banking services in Nepal has helped provide new financial solutions to those who do not have access to formal banking services. Also, it provides reliable, safe and convenient banking services for rural areas. Providing various products and services, microfinance banking has revolutionized the banking sector of Nepal and made it more inclusive. Microfinance institutions have promoted the development of rural areas in Nepal. Microfinance has had a positive impact on Nepal's economy by providing access to microcredit and financial services. Microfinance has been recognized as a particularly effective development infrastructure. In which, the services provided through microfinance institutions are targeted especially to the poor and the very poor. Organizations that provide microfinance banking services can be developed as sustainable organizations with ever-increasing reach within a few years to make a significant contribution to the social and economic status of the target community. The purpose of microfinance is to support the needs of women in the target area and their empowerment process. The microfinance institution aims to create a sense of community among the members, to increase the confidence and capacity of the members and to develop the collective decision-making capacity of the members. The work of microfinance is also to encourage the habit of saving in women and facilitate them to accumulate their own capital resources. Microfinance also aims to motivate women to take social responsibilities especially related to women's development. The objectives of Microfinance are to increase the income level by using credit for the right activities to face future risks and to encourage confidence. Microfinance also helps to increase self-esteem and self-reliance by making good use of credit. The purpose of microfinance is to make a significant contribution to poverty alleviation in rural and backward areas of Nepal. Microfinance established in this way has contributed significantly to poverty alleviation in Nepal. However, in recent times, challenges have been added to microfinance institutions. Challenges of the microfinance sector Although its contribution to the economic upliftment of the poor is important, it is facing some challenges and problems. The first challenge for microfinance is the geographical situation of Nepal. Likewise, the lack of security for employees, and competition with finance companies are also challenges in the microfinance sector. Necessary training could not be given to the employees.    Similarly, there is a shortage of skilled workers in this sector. Lately, microfinance financial institutions are becoming more profit-oriented than service-oriented. It is widely criticized for making more profit. Duplication of loans among members and lack of proper utilization inspection of loans after loan investment has added to the problems in microfinance services. This is the reason why the struggle against microfinance institutions has also started. Solutions It seems that some steps must be taken to solve the existing problems in the microfinance sector. Proper regulation, supervision of the field, transparency of interest rates, provision of skilled staff and proper training etc. are prominent among them. Similarly, it should be service-oriented rather than profit-oriented, and action should be taken against those who protest that they do not pay the loans of microfinance institutions. In addition to microfinance, savings and loan cooperatives seem to spend a large portion of their resources in the high-margin sectors of real estate and the stock market. As a result, a large number of microfinance companies are struggling for their existence. The condition of Savings and Loan Cooperatives is even worse as they are rapidly losing the confidence of depositors with most of them forced to close their businesses permanently. When the financial situation is going through a difficult time, the disorganized situation in the financial sector is sure to create a situation that is not suitable for economic activities while facilitating the economic growth rate. The supervision and inspection department of the central bank should be strengthened. It seems that irregular periodic inspections of financial institutions should be done. Providing heavy penalties for all irregularities. A deeper analysis is recommended to check how the concessional loans issued during and after the Covid are being utilized by various sectors. It may also indicate the volume of capital flight and its channel to take serious reform measures. To obtain a license from Nepal Rastra Bank and make poor and low-income people and women members and collect regular savings from them to operate agricultural and small enterprise businesses in collective funds, provide micro-loans without collateral and take acceptable collateral for their members or other persons. Institutions that provide mortgage loans and collect the savings of members in a limited amount are called microfinance institutions. Looking at the current situation in Nepal, experts have pointed out that there is a need to make extensive changes in the way microfinance financial institutions work. The experts said this in the recently held interactive program on microfinance in crisis, causes and solutions. The purpose of microfinance financial institutions is to gradually improve their financial status by providing small loans without collateral for people who do not have collateral but have working skills and energy. As the organization cannot operate according to that purpose, the problem has now appeared. At present, the working style of microfinance institutions is similar to that of commercial banks, so it seems that there is a need to modify the working style of microfinance institutions and create an environment in which they operate according to their objectives. It is said that the principle of microfinance is not bad, the problem is that their working style is not correct. It is said that Nepal Rastra Bank has come to the understanding that microfinance companies are spreading distortions due to the hype of making a profit from public things. Nepal Rastra Bank has announced that the system of microfinance deteriorated when the players of the stock market entered microfinance. Officials of Ratra Bank have acted in line with the instructions of Nepal Rastra Bank, some percentage of microfinance companies. Some borrowers have been asking for loan waivers saying that microfinance has gone too far. However, it has become common knowledge that even if the distressed debtors are classified and assisted, the loan will not be waived. In addition, the National Bank has instructed the concerned institutions to submit the draft within one month after studying the debtors. Nepal Rastra Bank Microfinance Institution Supervision Department has said that it is necessary to improve the activities of microfinance institutions. It is clear that since microfinance is a self-regulating institution, the Rastra Bank had provided ease by not tightening the regulation, now that such problems have started to appear, there is an urgent need to tighten the regulation. Some traditional investors in microfinance companies in Nepal today seem very disappointed. They say that there is a lot of hype about how microloans can change people's lives, but the reality is different. Everyone is curious to know how microcredit has helped in poverty reduction. Yes, the dependence of poor people on informal financing has decreased but not completely because micro-lenders meet their money demand only partially. People still need to raise money from loan sharks for health issues and other emergency needs and even for children's education. Microfinance institutions can give loans exclusively for productive purposes. As investors, they see that MFIs in Bangladesh do a good job of lifting people out of poverty and providing high returns on investment in Indonesia. It is not an exaggeration to say that poverty alleviation is the first priority of the Nepalese Microfinance Bankers Association in the face of microfinance banks in Nepal. The government's policy in the fight against poverty came alive with a thrust after the restoration of democracy. After taking a loan, borrowers should invest in a place that will generate income, such as business, but what has been seen here is that since it is easy to get a loan at home without collateral, this problem has been seen when they tend to take loans and spend on the household. It is a bitter reality that it is not possible. Now there is a financial crisis in the industry, business and business as a whole. The coronavirus epidemic came, the country was locked down, the coronavirus was not over, dengue came, then the cost of everything increased, due to which there was an economic crisis in all areas. This has also caused problems in microfinance lending. Some people are also of the opinion that microfinance institutions should not ask borrowers to return their loans during such a financial crisis. Similarly, there is also an opinion that when microfinance institutions give loans without collateral, the debtor's goods should not be confiscated. Nowadays, it seems that when any microfinance gives a loan, it is necessary to understand the business for which the loan has been taken and invest in that business. Nepal has come to reconsider the old 'rural model' which we have followed by learning from Bangladesh in microfinance. It has been proven that this model no longer works here. Microfinance institutions in Nepal are like banks. The bank gives loans and collects them. He does not look at the debtor's social aspect, family environment, financial condition, personal and psychological condition for debt recovery, he only looks at money. Due to fierce competition in Nepal, the microfinance sector has collapsed. Stakeholders have been saying that due to the tendency to seek quick profit and the mushrooming of microfinance institutions, fierce competition is increasing in this sector and it has dimmed the entire microfinance sector. The signs of economic recession in the country affected the entire banking and finance sector. The views expressed in this article are the author’s own and do not necessarily reflect People’s Review’s editorial stance.