NRB Caps Microfinance Interest Rates: Maximum 15%, Base Rate System Now Mandatory

Kathmandu, July 12 — The Nepal Rastra Bank (NRB) has issued a strong directive aimed at curbing excessive interest rates charged by microfinance institutions. According to the new circular, microfinance companies can now charge a maximum interest rate of 15% to their clients. Furthermore, for new loans disbursed after Shrawan 1, 2082 (July 16, 2025), a base rate + 3% premium cap has been made mandatory.

For existing loans disbursed before Shrawan 1, 2082, NRB has maintained that the interest rate must not exceed 15%, regardless of the originally agreed terms. This directive offers direct relief to thousands of borrowers—mostly women—who had previously been paying interest rates as high as 24% to 30%.

For new loans, NRB has enforced a transparent interest calculation mechanism. Every microfinance institution must calculate a base rate (similar to banks), which is derived from their administrative costs, cost of funds, and loan risk. The interest rate they charge to clients can be at most 3 percentage points above this base rate. This rate must be reviewed and adjusted every quarter.

For example, if a microfinance institution's base rate is 11%, the maximum it can charge is 14%. This regulation aims to eliminate arbitrary interest hikes and bring systematic discipline to microfinance lending.

To strengthen transparency, NRB has also mandated that every loan issued must come with a detailed Offer Letter, clearly stating the interest type (fixed or adjustable), loan duration, payment schedule, and any applicable penalties or service charges. If a loan is renegotiated or terminated, the borrower must be formally informed.

In another major change, microfinance institutions must now clearly categorize loans as either Fixed Interest Rate or Adjustable Interest Rate. For adjustable loans, the interest must be linked to the base rate and revised regularly. Fixed-rate loans must maintain the same interest rate throughout the tenure unless renegotiated.

This move is part of NRB’s broader financial inclusion and consumer protection agenda. The regulator has cited the need to protect economically vulnerable borrowers, particularly women-led households, from financial exploitation and to promote responsible lending.

Additionally, detailed borrower documentation and transparent loan tracking systems, such as passbooks or SMS notifications, must now be provided to every borrower. Institutions are also directed to record the economic sector and purpose of the loan—agriculture, retail, production, or service—ensuring greater oversight.

In summary, this directive is a major milestone in regulating Nepal’s microfinance sector. By capping interest rates and introducing a transparent, systematic pricing model, NRB aims to end interest rate abuse, strengthen borrower rights, and restore public trust in the microfinance system. The real test, however, lies in how strictly microfinance institutions implement this directive on the ground.