Nepal’s central bank has tightened its grip on microfinance institutions, following widespread criticism that microfinance companies have turned into loan sharks.

Borrowers who have taken loans from commercial, development banks and finance companies will no longer get loans from microfinance institutions.

Nepal Rastra Bank on Wednesday amended the unified directives and made such arrangements to give priority to small borrowers who do not have collateral. There was no such limit before.

The microfinance companies who have already disbursed loans to such borrowers have provided facilities to repay the loan according to the previous payment schedule.

Nepal Rastra Bank said if microfinance companies make announcements to distribute more than 15 percent of dividends, 35 percent of the proposed dividend amount should be deposited in client protection funds.

Earlier, microfinance companies were not required to keep reserves while offering dividends of up to 20 percent.

The central bank has directed them to deposit 10 percent of the proposed dividend above 15 percent in a corporate social responsibility fund.

Nepal Rastra Bank has also stipulated that the minimum interest rate of deposits and savings should be set at least 50 percent of the maximum interest rate of the loan.

According to this, only half of the interest rate on which the loan is given will be available in the deposit.

Microfinance companies are registered and regulated by Nepal Rastra Bank, the country’s central bank. There are 64 microfinance companies currently in operation.