With the liquidity crisis deepening in the market, the issue of ‘margin lending’ offered by brokers has started to be widely discussed in the stock market.
Margin lending is a loan taken by the investor on condition that he pays some of the total purchase price and pays interest on the remaining amount from the broker. Some time ago, loans of this nature were provided by banks and financial institutions in the primary share issue in Nepal. Currently, the issue of margin lending for buying shares is also being discussed in the secondary market.
If the investor takes a loan directly from the bank and financial institution in the presence of his own shares, it is called ‘share pledge loan’. There is some difference between margin lending and share pledge loan.
In margin lending, any institution takes 10 percent of the total purchase price or more in cash and provides the remaining amount as loan. For example, when a customer buys a share of Rs. 1 lakh, he can pay Rs. 10,000 in cash and take the remaining Rs. 90,000 as loan. There is a margin of Rs 10,000 and a loan of Rs 90,000. That is why it is called margin lending.
Currently, brokers are preparing to provide the remaining loan with 30 to 40 percent margin from the customer. Brokers are currently offering loans in two models.
Santosh Mainali, president of the Brokers Association of Nepal, says that the main challenge now is to provide resources. “There can be two models of resources,” he said. In this case, the loan will be provided by the broker operator and the employee. In that case, the money that is currently due can also come to the capital market. ‘
The second model, Mainali says, could be more like a hire prescription. “In this case, the brokers have a separate financial institution, which can be monitored by the NRB,” he said.
According to Mainali, the first model is more suitable than the second model. “It simply came to our notice then. Investors can be comfortable too. ‘
According to Mainali, discussions on these two models have intensified. “We will not delay the implementation if the regulatory body shows interest,” he said.
So far, 22 brokers have obtained licenses for margin lending. However, due to the regulator’s delay in bringing them into operation, only 15 of them have renewed their licenses in the current fiscal year, said Mainali.