Dr. Yuba Raj Khatiwada, Economic and Development Advisor to Prime Minister KP Sharma Oli, has voiced strong opposition to the inclusion of microfinance institutions (MFIs) under the Bank and Financial Institutions Act (BAFIA).
Speaking at a program organized by the Microfinance Society of Nepal (MISON) on Friday, June 13, Dr. Khatiwada expressed concern that microfinance institutions (MFIs)—originally intended to expand financial access in remote areas—are increasingly being used as profit-driven enterprises, deviating from their core mission.
His remarks come at a time when a parliamentary committee is engaged in discussions on proposed amendments to BAFIA.
A former finance minister and governor of Nepal Rastra Bank (NRB), Khatiwada recalled that during his tenure at the central bank, he had lobbied to keep MFIs outside the purview of BAFIA, but his efforts were unsuccessful.
Said Dr. Khatiwada, “This is fundamentally a matter of legal restructuring, and I couldn’t accomplish it. Had I succeeded, microfinance institutions would not have been governed by BAFIA. I would have stopped them from being registered under the Companies Act. I would not have allowed microfinance to become major players in the stock market, nor let speculative trading in their shares continue unchecked.”
Read: Governor Defends Proposed Separation of Bankers and Entrepreneurs in BAFIA
He also noted that the government is preparing the second phase of its financial sector development strategy, adding that NRB must seriously reconsider how microfinance institutions are regulated and supervised. He criticized the current state of oversight, suggesting that NRB is already struggling to supervise commercial banks and financial institutions, making it ill-equipped to properly oversee grassroots-level microfinance operations.
“It makes little sense for the central bank to spend Rs 2 million to supervise a Rs 20 million microfinance operation,” he said. “I had previously proposed decentralizing supervision by empowering NRB’s regional offices to take on this role.”
He further emphasized that proper monitoring and supervision remain essential, given that not all institutions and individuals in society operate with integrity. Khatiwada also urged MFIs to prioritize financial literacy initiatives, which he said are vital to their mission.
He cautioned against the growing public tendency to conflate banks, financial institutions, cooperatives, and microfinance institutions, arguing that such misconceptions must be addressed through grassroots-level awareness campaigns.
Task Force Formed to Recommend Reforms in Banking Sector
In a move aimed at addressing persistent issues in the banking sector, Nepal Rastra Bank (NRB) has formed a three-member task force to recommend comprehensive reforms.
Chaired by Dr. Rewat Bahadur Karki, former chairman of the Securities Board of Nepal (SEBON), the task force includes former banker Bhuvan Kumar Dahal and NRB’s Executive Director of the Banks and Financial Institutions Regulation Department, Guru Paudel, who will serve as member-secretary. The task force has been given a one-month mandate.
The central bank said that the task force has been formed in the lead-up to the upcoming monetary policy and is expected to propose actionable recommendations to strengthen the financial system.
Key focus areas will include liberal yet prudent banking regulations, risk-based and effective supervision mechanisms, and the development of customer-friendly banking services. The task force will also examine the role of the banking sector in reviving economic activity and recommend ways to improve credit flow in rural areas.
Additionally, the task force will assess challenges emerging from post-merger scenarios among banks and financial institutions, and explore the banking sector’s role in helping Nepal exit the Financial Action Task Force (FATF) grey list.
The group is also tasked with reviewing NRB’s coordination with capital market development efforts and proposing improvements where needed.
The Confederation of Banks and Financial Institutions Nepal (CBFIN) has welcomed the initiative, calling it a historic step. In a statement, CBFIN expressed confidence that the task force will provide objective and practical recommendations to resolve structural challenges in the banking sector.
“This is the first time in Nepal’s banking history that a national-level task force has been created with an exclusive focus on banking reform,” read the statement. The organization added that the task force's engagement with stakeholders through in-depth consultations will be crucial in uncovering the root causes of current issues and recommending viable solutions.
