Real Estate and Housing Loans Hold Steady as Microfinance Credit Contracts by 10%

According to the Nepal Rastra Bank’s Sectorwise Outstanding Credit Report for Mid-August 2025, the real estate and housing sector has remained remarkably stable while microfinance lending sharply contracted by 10% year-on-year. The data reveals that total credit to the real estate segment stood at Rs. 191.35 billion, almost unchanged from Rs. 191.65 billion in the previous year, showing that property investment and mortgage activity have plateaued amid tighter monetary conditions and subdued demand.

On the other hand, the microfinance sector experienced a steep decline, with total credit falling from Rs. 204.6 billion to Rs. 184.08 billion, marking a 10% contraction. This pullback reflects a combination of stricter credit risk assessments, lower rural borrowing appetite, and NRB’s regulatory tightening on microfinance institutions following rising non-performing loans and public criticism over high interest rates. The decline in microfinance exposure contrasts sharply with the steady real estate lending, indicating a broader credit reallocation by banks and financial institutions toward secured, collateral-backed loans rather than high-risk small borrower segments.

Meanwhile, credit to other financial institutions such as cooperatives and private non-financial institutions showed mixed movement. Cooperative lending slightly decreased, while credit to investment-related institutions and non-financial private entities grew modestly, suggesting renewed interest in structured and institutional lending.

Economists note that the stability in real estate loans indicates that banks are maintaining strong exposure to property-backed lending, given the sector’s role as collateral security. However, the sharp decline in microfinance lending signals tightening financial inclusion momentum, potentially affecting rural entrepreneurship and small business liquidity in the short run.