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Microfinance providers in Nepal include formal, semi-formal, and informal entities. The main providers in the formal sector include microfinance development banks (MFDBs), financial intermediary non-governmental organizations (FINGOs), and financial cooperatives as well as state-run regional rural development banks. These institutions are regulated by Nepal’s central bank, the Nepal Rastra Bank (NRB). Semi-formal providers include unlicensed savings and credit cooperatives and unlicensed non-governmental organizations (NGOs). Savings and credit cooperatives are registered by the Department of Cooperatives within the Ministry of Agriculture and Cooperatives, while NGOs must register with the respective local Direct Administration Office. The informal microfinance providers include self-help groups, informal savings and credit organizations, and money lenders. The NRB’s Circular No. 31 on Mobilization of Deposits for Microfinance Development Banks of 2009/2010 now allows class “D” institutions (MFDBs) to mobilize deposits.

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Regulators

Microfinance & Banking

Consumer Protection

Presently, Nepal does not have an effective consumer protection mechanism to enforce and enhance compliance with consumer laws. Additionally, there is a general lack of awareness of consumers’ rights. However, Nepal’s 2004 ascendency to membership in the World Trade Organization is currently serving as an impetus to liberalize and reform the financial services sector, which should lead to better protections for consumers, such as increased transparency, disclosures, regulation, and supervision.

In 1989, Nepal’s Credit Information Bureau was established under the Banker’s Association of Nepal. The credit information bureau operates through a provision made in the Nepal Rastra Bank Act of 2002. Nearly ten years later, the Consumer Protection Act of 1998 was enacted to protect consumers from unfair and deceptive practices in the sale of consumer goods and services. (The act does not specifically refer to financial services when defining “services”.) However, according to news articles, this law has not been adequately enforced by the government.

Under the Consumer Protection Act No. 8 of 1998, the Consumer Protection Council was created to formulate policies relating to the protection of the rights and interests of consumers. Among its duties, the Council is mandated to disseminate consumer information relating to standards for services and also to inform consumers of unfair and deceptive practices. Similarly, the Compensation Committee was also created under the Consumer Protection Act No. 8 of 1998 and awards compensation to consumers who suffer losses as a result of prohibited activities. A Compensation Committee has been established in each district and its decisions can be appealed to the Appellate Court.

In 2007, the government enacted the Competition Promotion and Market Protection Act No. 35, which defines anti-competitive practices and bars them. To date, the law has been ineffective because the government has yet to establish the necessary enforcement mechanisms. Recently, the government announced its intent to introduce deposit insurance in the near future, and the Nepal Rastra Bank has proposed a deposit guarantee scheme to the Finance Ministry.

In Nepal, there are several activist consumer organizations, including the Forum for Protection of Consumer Rights-Nepal and the Forum for the Protection of Public Interest (PRO PUBLIC). PRO PUBLIC acts as a watchdog in several sectors including consumer rights, is involved in dispute resolution and litigation, and works to enhance the capacities of local and grassroots organizations.

Branchless Banking