Microfinance sector in Nepal
Landscape of financial service providers
The microfinance market in Nepal is divided into three sectors: formal, semi-formal and informal. |
Formal Sector:
The formal sector has 19 commercial banks, 29 development
banks, 63 finance companies and 11 rural microfinance banks
out of which two are wholesale credit providers for MFIs.
Semi Formal Sector: The semi formal sector comprises Small Farmer Cooperatives Ltd, Savings and Credit Cooperative Societies (SACCOSs) and NGOs.
|
|
| Informal Sector:
The informal sector comprises about 40,000 informal community
based organisations such as self help groups and informal
savings and credit organisations. In addition, Rotating Savings
and Credit Association (ROSCA) known as "Dhukuti",
moneylenders, traders, friends also provide an informal source
of finance used by a majority of the poor. |
Regulations in Microfinance
Priority sector lending program: The central bank (NRB) imposes ‘priority sector’ lending to commercial banks, which entails lending a certain percentage of their deposit liability to deprived population. The ratio of priority sector lending has increased from 5% to 12%, of which, 0.25 to 3% must be invested in the ‘deprived’ sector, targeting the poorest of the poor.
Development Banks Act 1995: The two apex organisations
as well as the five Regional Microfinance Rural Development Banks
(RRDBs) and the four private rural microfinance banks are registered
under Development Bank Act 1995. This Act was merged under BAFIO-2004.
Financial Intermediary Act 1998: The NGOs providing
microfinance services are registered under the 'Financial Intermediary
Act 1998', which provides a limited banking license to NGOs. To
date 47 NGOs are registerd under this Act and providing financial
services.
Cooperative Act: Cooperatives are regulated
by the Cooperative Act and supervised by the Ministry of Agriculture,
Department of Cooperatives. Out of various types of cooperatives
savings and credit cooperatives are providing microfinance services.
There are 8000 registered Cooperatives of which 2700 are savings
and credit cooperatives.
Microfinance Models / Practices
Grameen Bank methodology: The Grameen Bank methodology was introduced in Nepal during 1990s. This model has been adapted by a large number of organisations, operating in the Terai region (Southern plain), where the population is dense and road, market and other infrastructure are comparatively better developed.
Community-based models: In the hills and mountains, community based microfinance organisations are operating. The most significant community-based models are:
 |
Savings and Credit Cooperative
Societies (SACCOSs) |
|
Small Farmers Cooperatives Ltd (SFCLs) |
|
Savings and Credit Groups (SCGs) |
Refinancing and Supporting Organisations
Refinancing Organizations
1. The Rural Self Reliance Fund (RSRF): RSRF was established in 1990 by the Government to support community-based MFIs who are providing financial services to the community.
2. The Rural Microfinance Development Centre Ltd (RMDC): RMDC was established in 1998 to provide wholesale funding to regulated MFIs.
3. Sana Kisan Bikas Bank (SKBB): SKBB was established in 2001 to outsource the wholesale funding to Small Farmers Cooperatives Ltd (SFCL) and similar institutions.
Capacity Building, Network and Supporting Organisations
Other than GTZ - Rural Finance Nepal (RUFIN) Project the following institutions have been providing capacity building and other support to MFIs in Nepal:
|
The Center for Microfinance |
|
Nepal Federation of Savings and Credit Cooperative Union Limited (NEFSCUN) |
|
The Institute for Integrated Development Studies (IIDS) |
|
Plan Nepal |
|
Canadian Centre for International Studies and Cooperation (CECI)-Nepal |
|
Microfinance Association of Nepal (MIFAN) |
Outreach
of Nepalese MFIs
In terms of service providers and outreach, Nepal’s rural
micro finance sector has expanded significantly over the last
decade. Table 1, 2, 3 below shows the different Micro Finance
Institutions (MFIs) and their outreach in July 2004 & July
2006 and their growth rate from 2004 to 2006.
Table – 1
Key Actors in Nepal's Rural Micro Finance Sector and
their outreach as of July 2004
| S.N
|
Name of Microfinance
Institutions (MFIs)
|
No.
of members in
(Thousand) |
No.
of borrowers in (thousand) |
Savings
Mobilization in NRS 1(million) |
Outstanding
Loan in NRS (million) |
Percentage
in total Outreach |
| 1 |
Eastern Rural
Development Banks |
48
|
48 |
196 |
509 |
|
| 2
|
Central Rural
Development Banks |
36 |
36 |
82 |
244
|
|
| 3 |
Western Rural
Development Banks |
37 |
37 |
83 |
345
|
|
| 4 |
Mid- western Rural
Development Banks |
14 |
14 |
51 |
137
|
|
| 5 |
Far- western Rural
Development Banks |
11 |
11 |
45 |
116
|
|
| |
Rural Development
Bank (Sub total) |
146
|
146 |
457
|
1351
|
21.6 |
| 6 |
Nirdhan
Utthan Bank (MF Bank) |
45
|
45 |
80 |
263
|
|
| 7 |
Swabalamban Bank
(MF Bank) |
26 |
26 |
97 |
194
|
|
| 8 |
Deprosc
Bank (MF Bank) |
10 |
10 |
17 |
89
|
|
| 9 |
Chhimek Bank (MF
Bank) |
9 |
9 |
22 |
75
|
|
| |
Microfinance bank(Sub total)
|
90
|
90
|
216 |
621 |
13.3 |
| 10 |
Small Farmer Cooperative
Ltd (SFCL)
Total SFCLs: 161 |
90 |
90 |
290 |
1317 |
13.3 |
| 11 |
Savings and Credit
Cooperatives (SCC) Total SCC: 2300 |
180 |
180 |
2500 |
2600 |
26.6
|
| 12 |
Financial Intermediary
NGOs
Total NGOs: 43 |
29 |
29 |
31 |
127 |
4.3
|
| 13 |
Small Farmer Development
Project |
66 |
66
|
43
|
676 |
9.7
|
| 14 |
Deprived Sector
Lending program of Commercial Banks |
76 |
76 |
75 |
289 |
11.2 |
| 15
|
Total
|
677
|
677 |
4285 |
8953 |
100 |
1 US
$ 1 = NRS 71
Table – 2
Key Actors in Nepal's Rural Micro Finance Sector and their Outreach
as of July 2006
| S.N
|
Name
of Microfinance Institutions (MFIs)
|
No.
of members |
No.
of borrowers in (000) |
Savings
Mobilization in NRS (000)
|
Outstanding Loan in NRS (000) |
Percentage in total Outreach |
|
1 |
Eastern Rural
Development Banks |
45194 |
41753 |
158033 |
594135 |
|
|
2 |
Central Rural
Development Banks |
42602 |
42058 |
109624 |
|
|
|
3 |
Western Rural
Development Banks |
42451 |
41097 |
92985 |
|
|
| 4 |
Mid- western Rural
Development Banks |
18072 |
12492 |
45961 |
166398
|
|
|
5 |
Far- western Rural
Development Banks |
19567 |
11855 |
3709 |
|
|
| |
Rural Development
Bank (Sub total) |
167886
|
149255 |
443694
|
1636050 |
14.6
|
| 6 |
Nirdhan Utthan Bank (MF Bank) |
75263 |
58679 |
156900 |
556264 |
|
| 7 |
Swabalamban Bank (MF Bank) |
61739 |
47811 |
114490 |
322714 |
|
| 8 |
Deprosc Bank (MF Bank) |
20322 |
16759 |
7608 |
183045 |
|
| 9 |
Chhimek Bank (MF Bank) |
28509 |
23153 |
37090 |
199898 |
|
| |
Microfinance bank(Sub total)
|
185833
|
146402
|
316088 |
1261921 |
16.1
|
|
10 |
Small Farmer Cooperative Ltd (SFCL)
Total SFCLs: 205 |
117094 |
117094 |
563231 |
1856079
|
10.1
|
|
11 |
Savings and Credit Cooperatives
(SCC) Total SCC: 2692 |
358312 |
250818 |
6485368 |
10961461 |
31.1
|
|
12 |
Financial Intermediary NGOs
(FINGOs) Total NGOs: 47 |
138830 |
107931 |
218204 |
372353 |
12.0
|
|
13 |
Small Farmer
Development Project(SPO) |
25185 |
25185 |
5250 |
294429 |
2.2
|
|
14 |
SPOs merged with agricultural
Dev Bank |
105464 |
105464 |
17300 |
462025 |
9.1
|
|
15 |
Deprived Sector Lending
program of Commercial Banks, PCRW, MCPW and BWTP of Rastriya
Banijya Bank (RBB) |
55118 |
55118 |
|
221051 |
4.8
|
|
16 |
Total
|
1,153,722 |
957,267 |
8,049,135
|
17,065,369
|
100 |
Sources
1. The information of Rural Development Bank, Microfinance bank
and FINGOs are collected from Microfinance Department of Nepal
Rasta Bank (Central Bank of Nepal)
2. The information of SFCLs and SPOs are collected from Microfinance
Department of Agriculture Development Bank Ltd.
3. The information of SCCs is collected from the website of Department
of Cooperative
4. The information of Rastriya Banijya Bank is collected from
Credit Department of RBB
Table – 3
Growth2 of Major
Microfinance Institutions from July 2004 to July 2006
| S.N
|
Name of Microfinance Institutions (MFIs)
|
Outreach |
Savings |
Loan
|
|
1 |
Rural Development
Banks |
15% |
(-) 3% |
21% |
|
2 |
Microfinance banks
|
107% |
46% |
103% |
|
3 |
Small Farmer Cooperative
Ltd (SFCL) |
30% |
94% |
41% |
| 4 |
Savings and Credit
Cooperatives (SCC) |
99% |
159% |
322% |
|
5 |
Financial Intermediary
NGOs (FINGOs) |
379% |
603% |
193% |
| |
Total Average
|
74% |
125% |
145% |
2 Inflation
rate during the period is 5% per year
As shown in the table-3 the growth of Microfinance
services (from July 2004 to July 2006) is impressive despite the
difficult situation due to conflict, microfinance service has
recorded a significant growth. The figure shows that during the
conflict situation other service providers (government and NGOs)
were shrunk from rural areas into city center and district headquarter
but microfinance services grew continuously. However the growth
rate varies significantly on the types of MFIs. For example the
figure clearly shows that government promoted and managed programs
have lower growth rate than private sector promoted and managed.
Net outreach of MFIs in Nepal
| Total outreach
|
1,153,722 |
| Less |
|
| SCCs serving not so poor |
(36,000)3 |
| Duplication ( Estd. 10 % of Gross
outreach) |
(1,15,372) |
| Net outreach
|
1,002,350 (One
million approximately) |
It is estimated that about 50% of total households of Nepal have
less than $ 1 per day income and required microfinance services.
Thus additional 1.7 million households required microfinance services.
This clearly shows MFIs in Nepal should focus for aggressive expansion
to reach 1.7 million un-served households.
3 SCCs located
in city areas of Kathmandu, Lalitpur, Bhaktapur, Kaski, Chitawan,Morang,
Banke and Dhanusha districts are mostly serving not so poor. They
are providing loan for small and micro enterprises and for consumption
purposes. It is estimated that out of total reported male members
about 36,000 members (60% of total male members) fall in not so
poor category.
The 40% male members are considered microfinance client on the
basis of two assumptions:
- First, generally those who do not have access to formal financial
services take these services from cooperative.
- Second, cooperatives located in above areas are focused not
only in city areas and not only focused in not so poor but also
focused on poor clients of outskirt rural areas.
