Over 5,000 microfinance borrowers have been blacklisted by the Credit Information Center due to rising loan defaults, with economic slowdown and debt non-payment movements affecting recovery efforts. According to the Credit Information Center, as of October 9, 2024, a total of 5,427 borrowers were blacklisted, a sharp increase from 674 borrowers in mid-July 2023 and over 4,000 by mid-July 2024. In the first four months of the current fiscal year, an additional 1,000 borrowers were added to the blacklist.

To address loan duplication and misuse, the Nepal Rastra Bank directed microfinance institutions to join the Credit Information Center and share borrower data two years ago. Since July 2022, the Center has maintained a separate blacklist for microfinance borrowers. In response to the rising number of blacklisted borrowers, the central bank issued guidelines in August 2024, allowing loan restructuring options for affected borrowers. These guidelines enable microfinance institutions to extend repayment periods by up to three years for borrowers facing repayment challenges, allowing them to be removed from the blacklist upon restructuring.

Under these instructions, microfinance institutions are required to recommend blacklisting for borrowers who default on loans exceeding Rs 500,000. However, institutions may also blacklist borrowers with loans below this threshold at their discretion. Blacklisted individuals are barred from opening accounts or obtaining loans from banks or financial institutions until the entire loan interest is paid, after which the institution can request removal from the blacklist. Additionally, microfinance institutions must obtain credit information from the center before issuing, renewing, or restructuring loans.

Economic challenges have affected borrowers’ ability to repay loans, with the ongoing loan waiver movement impacting microfinance recovery rates. Microfinance workers note that recovery efforts were further affected by the central bank’s restrictions on double loans and lowered loan limits. "Microfinance previously expanded aggressively, but reducing the loan limit from Rs 1.5 million to Rs 700,000 has impacted recovery," said Cholaraj Sharma, CEO of NIC Asia Microfinance Institution.

Currently, Nepal has 59 licensed microfinance institutions with millions of members and 2.6 million borrowers. Microfinance institutions provide group loans without collateral to low-income groups who typically lack access to banks and financial institutions. However, the sector has faced criticism for lending more than borrowers can afford to repay, often leading to financial distress.

Following public protests regarding high debt burdens from microfinance loans, the Nepal Rashtra Bank and the government formed two separate committees to study the issue. Based on these studies, authorities plan to implement policy reforms to address challenges within the microfinance sector.