Nonperforming loans at Nepal’s microfinance institutions have surged to Rs. 50.82 billion, highlighting growing pressure on loan quality across the sector.

According to Nepal Rastra Bank’s 2026 Offsite Supervision Report on Microfinance Financial Institutions, nonperforming loans increased from Rs. 31.02 billion in July 2025 to Rs. 50.82 billion in July 2026, a rise of 63.63%. The report separately describes the annual growth at 63.83%.

The increase in bad loans has significantly outpaced lending growth. Total loans and advances of retail microfinance institutions increased 10.09% to around Rs. 487.74 billion during the review period.

Loan-loss provisions have also risen sharply. Total provisions increased 34.88% to Rs. 35.24 billion, while provisions specifically against nonperforming loans increased 84.08% to Rs. 29.42 billion.

NRB attributed the deterioration in loan quality to several factors, including difficulties in loan recovery, borrowers taking multiple loans, a sluggish economy and pressure on borrowers’ repayment capacity.

Agriculture remains the largest lending segment for microfinance institutions. By July 15, 2026, Rs. 313.05 billion, or 58.63% of total lending, had been directed toward agriculture. Service businesses accounted for 20.45%, wholesale lending 8.65%, household and small enterprises 2.64%, and other sectors 9.62%.

Despite the deterioration in loan quality, the sector’s aggregate net profit increased from Rs. 7.28 billion to Rs. 10.78 billion over the review period. Two of the 48 operating retail microfinance institutions reported net losses.

The sector’s capital position remained above regulatory minimums. Core capital stood at 11.40% of risk-weighted assets, while total capital stood at 12.56%, against minimum requirements of 4% and 8%, respectively.

Total assets of microfinance institutions increased 7.88% to Rs. 655.42 billion. However, total investments declined 6% to Rs. 9.90 billion, while fixed-deposit investments fell 14.39% to Rs. 7.19 billion.

Microfinance institutions mobilized Rs. 225.27 billion through savings and deposits and Rs. 212.54 billion through external borrowing, taking total financial resources to Rs. 437.81 billion.

The latest figures show a widening gap between the growth of microfinance lending and the quality of those loans, putting greater emphasis on recovery, provisioning and risk management across the sector.