Microfinance (Financial Service) for Agricultural
Commercialization and Its Accessibility in SRCAMP Project
Areas

Ragab Kayastha
Discussion Paper

Submitted toCenter for Economic Growth Strategy
Yokohama National University
November 20140

Table of Contents

1. Introduction

2

2. Current Status of Microfinance in Nepal

2

3. Current Status of Microfinance in Project Area

4

4. Challenges of Microfinance in Nepal

9

5. Challenges of Microfinance in Project Area (Project Fields)10

6. Potentiality of Microfinance including Hello Paisa in Project Area

12

7. Good Practices of Microfinance in Nepal

14

8. Countermeasure of Microfinance in Project Area

17

9. Recommendations of Microfinance in Target Areas (Project Fields)

18

References

19

Annex

20

Annex 1

List of Banks and Financial Institutions

Annex 2

Information of Cooperatives of Four Districts

Annex 3

Chhimek Microfinance Development Bank (Quarterly)

Annex 4

Chhimek Microfinance Development Bank (Bhiman and Sindhuli Branch)11. Introduction
This paper has focused on reality of microfinance in SRCAMP project areas. SRCAMP is “theproject for the Master Plan Study on High Value Agriculture Extension and promotion in
Sindhuli Road Corridor (SRC) area”. The SRCAMP was launched in June 2011 and willterminate in March 2014. It has three phases. In phase one (May 2011 – March 2012), it reviews
the potentiality and constraints of agriculture in SRC area and develop tentative master plan andideas of pilot projects. In phase two (April 2012 – March 2013), it conducts verification study
through pilot projects. In phase three (April 2013 – March 2014), it integrates experiences of thepilot projects to the master plan, and formulates a master plan till 2020 to promote the High
Value Agriculture (HVA) in SRC area. The SRCAMP project areas are Bhimkhori Village
Development Committee (VDC) from Kavre District, Ratanchura VDC and Ratamata VDCfrom Sindhuli District, Hattitar VDC from Ramechhap District, and Boch VDC from Dolakha
District.
The goal of SRCAMP is to promote High Value Agriculture (HVA) to bring livelihood
improvements of local residents through income generation. For that purpose, the financial
aspect related with agriculture is also inevitable to analyze the reality that how the farmers areaccessing to finance to involve in their agriculture productions. So this paper has discussed thecurrent status and challenges of microfinance in SRC area and searched the countermeasuresand recommendations to cope with those challenges.

2. Current Status of Microfinance in Nepal
The history of agricultural finance is comparatively long in Nepal. The first attempt ofcooperative activities in Chitawan District in 1956 can be distinguished as a primary step of
microfinance. The following is time table of the development of microfinance in Nepal. The
development of microfinance has accelerated specially from mid 1990’s.
Year

Development Events in Microfinance Sector in Nepal

1956

Firstly, microfinance was in use by registering first cooperative – Bakhan Singh Creditin Rapti Doon area of Chitawan District, mainly focusing on shelter.

1963

Cooperative Bank, for investing cooperatives.

1966

Land Reforms Savings Cooperation, for lending in agricultural sector, capital was theamount that was collected through land reform in 1964.

1968

Agriculture Development Bank of Nepal (ADBN).
2

1973

Land Reforms Saving Cooperation was merged in ADBN.

1974

Priority Sector Credit (PSC), Central Bank of Nepal (CBN) mandated commercial
banks to provide 5% of the total saving to small farmers and rise up to 12% in 1990.
So 25% of PSC, 3% of loan portfolio is divided to Deprived Sector Credit focusing topoor farmers. It is first government oriented microfinance program in Nepal.

1975

Small Farmer Development Program (SFDP), Pilot Project of ADBN focusing to poor
farmers, as the Government of Nepal (GoN) initiated Poverty reduction as formal
strategy, and recognized the importance of microfinance – from Sixth Development
Plan (1980/1-1984/85).

1981

Intensive Banking Program, reinforcing PSC.

1982

Production Credit for Rural Women (PCRW), first program focusing on gender withcooperation of UNICEF, CBN and Ministry of Local Development.

1991

Center for Self-help Development (CSD), provided self-help banking program in 1993
and firstly did financial activities in 3 Village Development Committees. In 2002,
CSD converted into Swabalamban Bikas Bank to broaden the MF services.

1991

Nirdhan, later, it also became Nirdhan Utthan Bank getting license of Development
Bank Act 1996.

1992

Grameen Bikas Bank (GBB), replication of Grameen Bank in Bangladesh. 5 GBB in 5
development regions of the country.

1994

Development Project Center (DEPROSC), started providing MF services from 1995. It
also became DEPROSC Development Bank in 2001.

1998

Center for Microfinance (CMF), promoting the MFIs.

1999

Microfinance Association of Nepal (MIFAN).

2001

Chhimek Microfinance Development Bank Ltd.

2002

Sana Kisan Bank Limited (SKBBL)-Small Farmer Development Bank.

2003

National Cooperative Development Bank (NCDB).

2007

Nerude Laghu Bitta Bikas Bank Ltd.

2009

Naya Nepal Laghu Bitta Bikas Bank Ltd., Sworojagar Laghu Bitta Bika Bank Ltd.,First Microfinance Development Bank Ltd., Mithila Laghu Bitta Bikas Bank Ltd.,
Summit Microfinance Development Bank Ltd.

2010

Mirmire Microfinance Development Bank Ltd., Nagbeli Microfinance Development
Bank Ltd., Kalika Microcredit Development Bank Ltd., Janautthan Samudayik
Microfinance Development Bank Ltd.

Microfinance providers in Nepal include formal, semi-formal and informal entities. The main
providers in formal sector include microfinance development banks (MFDBs), financial
3intermediary non-governmental organizations (FINGOs), licensed (by the Central Bank) savingsand credit cooperatives (SACCOs) and state-run regional rural development banks (RRDBs).
There are total five RRDBs in Nepal. The Nepalese term of this institution is Grameen Bikas
Bank which is the replication of Grameen Model from Bangladesh. Semi-formal providers
include unlicensed SACCOs and unlicensed NGOs. SACCOs are registered by the Departmentof Cooperatives within the Ministry of Cooperatives and Poverty Reduction. On the other hand,NGOs must register with the respective local District Administration Office. The informal
microfinance providers include self-help groups, informal savings and credit organizations, andmoney lenders.

3. Current Status of Microfinance in Project Area
Three types of MFIs are providing microfinance services in the project area districts which
include microfinance development banks (MFDBs), savings and credit cooperatives (SACCOs)
and financial intermediary non-governmental organizations (FINGOs).
Table 1 - List of Microfinance Development Banks (MFDBs) Functional in SRC Districts
Name of Institution

Kavre

DolakhaRamechap

Sindhuli

1

Madhymanchal Grameen Bikas Bank Ltd.



2

Rural Microfinance Development Centre Ltd.









3

Deprosc Microfinance Development Bank Ltd









4

Chhimek Microfinance Development Bank Ltd





5

Shawalamban Laghu Bitta Bikas Banks Ltd.





6

Sana Kisan Vikas Bank Ltd.

7

Nerude Laghu Bitta Bikash Ltd.

8

Naya Nepal Laghu Bitta Bikas Bank Ltd.



9

Sworojagar Laghu Bitta Bika Bank Ltd.



10First Microfinance Development Bank Ltd.





11

Mirmire Microfinance Development Bank Ltd.





12

Mithila Laghu Bitta Bikas Bank Ltd.

13

Womi Microfinance Bittiya Sanstha Ltd.













Source: NRB, 2011 & 2013

MFDBs operate based on Grameen Model. According to Grameen Model, the banks organize
center1 meeting in every week and the financial transactions such as repayment of the loans,1

One center consists of maximum eight groups and there are five members in one group.

4

application of new loans, savings, etc. However, it is difficult to run center meeting in every
week especially in hilly areas due to the difficulties in transportation access. So MFDBs havebeen operating center meeting in every four weeks (one month) instead of every week since past
few years. Furthermore, some MFDBs have also introduced village model or self-reliancemodel in which the villagers themselves run the center meeting and the financial transactions tominimize the operating cost of the MFDBs.
The criteria of target groups of MFDBs are quite similar. MFDBs carefully target their services
to a selected group of women. MFDBs recruit new clients who fit the following targeting
criteria for their group based financial services:-

Married woman from the age of 16, more than age of 35 in case of unmarried woman.

-Must be maximum ten members in each group or unit.

-

Own less than 0.25 hectares of irrigated land or less than 0.5 hectares of un-irrigated land
per five person family.

-

House must not have brick or cement walls/ceiling (pucca house)-

Permanent resident of area.

-

No family members employed in the formal sector.

-

No current loan from other financial services providers.

-

A per capita income of less than NRs. 55,000.

However, with these criteria remained intact, a new individual-based service that does not use
these criteria was developed from 2000’s.
According to Mix Market 2, here are some detail information of services and products provided
by Chhimek Microfinance Development Bank.
Gross Loan Portfolio USD, 2012: 27.1 million
Number of active borrowers 2012: 113,963
Average loan balance per borrower USD, 2012: 237.6
Deposits USD, 2012: 18.2 million
Assets USD, 2012: 40.5 million
Interest rate for loan – 21 percent (including one percent of service charge)
Interest rate for saving – 8-12 percent
2

MIX stands for Microfinance Information Exchange, Inc. Mix Market is a non-profit organization, founded in June
2002, acts as a business information provider in the microfinance sector. Its headquarters is in Washington DC in
United States, and it has regional offices in Peru, Morro and India.

5

Interest rate for pension – 16 percent
Cost up on saving average – 11 percent
Products and Services:
Loans
Voluntary Savings
Insurance
Funds Transfer Services
Training and Consulting
Products:
1. Loan products:a) General loan: NRs. 1,000 to NRs. 20, 000b) Discipline loan: Maximum NRs. 30, 000 including General loanc) Micro Enterprise loan: Maximum NRs. 100,000 including General loan and Discipline
loand) Unit house Loan: NRs. 1,000 to 50,000
2. Saving products:
The bank has offered four types of savings products. The bank pays 8 percent interest in dailybalance method to all kinds of savings. They are followings:a) Monthly saving: It is compulsory to every member to save NRs. 30 monthly. This fund isrefundable if the saving is more than NRs. 5,000.
b) Disaster saving: At the time of taking loan, borrowers have to save 5 percent of the total loan
amount. This fund will be provided in the time of disaster cases like flood, landslide, fire,snakebite, earthquake, thunder etc. Otherwise they will get the first saving only after 5 years of
the savings.
c) Optional saving: It is a current account for the members. To open the account, NRs 100 isnecessary for minimum balance. From this account the members can deposit and allowed towithdraw any amount from their account.
d) Unit fund: This fund is created for helping the members to make Unit house, necessary
materials for the meeting, training, and social welfare work. It is compulsory to save NRs. 5 perunit member in this fund monthly.
6

3. Security fund:The bank has managed two types of security fund.
a) Animal security fund: When the clients take out a loan for big livestock, they have to pay 5
percent premium of loan amount to preserve livestock. If the animal died in the period ofpreservation time, the clients will get 75 percent of total loss as insurance.
b) Member security fund: In the time of taking the loan from the bank, compulsorily the
program members should save 1 percent of loan amount in member security fund. This fundoperation compensates in the death of borrower, which provides hundred percent of loan
amount or if in the case of guardian’s death, the borrower will get NRs. 1,500 as compensation.
4. Disciplined member welfare fund:This fund is created for the disciplined unit. Every disciplined unit can get NRs. 250 monthly.
This amount of money can be used in the work of their need by their selves such as education,
health etc.
The bank’s mission is to extend financial services and social awareness to poor in under-servedand UN –served areas of Nepal in a sustainable manner.
Table 2 - List of Saving and Credit Cooperatives with Limited Banking Authority
Registered under NRB Operating in SRC Districts
Names
Bindabasini Saving & Credit Co-operative
Society Ltd.
Shree Manakamana Sahakari Sanstha Ltd.

Operation Date
6/21/1995
2/18/1997

Paid up Capital

Head Office(NRs. '000)

Khopasi,

411

Kavre
Banepa, Kavre

120

Source: NRB, 2011

Table 3 - List of Financial NGOs Providing Financial Services with NRB License
Functional in SRC Districts
Names

Kavre

DolakhaRamechhap

Sindhuli1Mahuli Samudyik Bikas Kendra

2

MANUSHI3

Jiwan Bikash Society

4

Women Development Centre of Nepal







5

Nepal Mahila Utthan Kendra










7

6

Gramin Mahila Utsukta Bikas Manch

7

Sawabalamban Bikash Kendra

8

Srijana Community Center

Source: NRB, 2011 & 2013

Except these institutions, many local cooperatives are providing financial and non-financial
services in those areas. Here are the numbers of cooperatives in Sindhuli Road Corridor (SRC)
districts.
Table 4 - Details of Cooperatives in Study Districts
Total No. of Agriculture
based Cooperatives

No. of Cooperatives by type of activity
Kavre district
Agriculture Cooperatives:
Vegetable and Fruit Producers’ Cooperatives3:
Coffee Producers’ Cooperative:
Bee Keeping Cooperative:
Milk Producers’ Cooperatives:
Multipurpose Cooperatives:
Other Cooperatives including Saving and Credit Cooperatives:
Dolakha district

146
19
8
5
272
184
518

1,152

Agriculture Cooperatives:
Vegetable and Fruit Producers’ Cooperatives:
Tea Producers’ Cooperatives:
Milk Producers’ Cooperatives:
Multipurpose Cooperatives:
Other Cooperatives including Saving and Credit Cooperatives:
Ramechhap district

154
6
3
7
40
284

494

Agriculture Cooperatives:
Tea Producers’ Cooperatives:
Milk Producers’ Cooperatives:
Multipurpose Cooperatives:
Other Cooperatives including Saving and Credit Cooperatives:
Sindhuli district

98
1
4
37
236

376

Agriculture Cooperatives:
Vegetable and Fruit Producers’ Cooperatives:
Medicinal Plants Cooperative:
Bee Keeping Cooperative:
Milk Producers’ Cooperatives:
Multipurpose Cooperatives:
Other Cooperatives including Saving and Credit Cooperatives:

112
8
16
6
17
21
220

400

Source: Department of Cooperatives (2012), Ministry of Cooperatives and Poverty Reduction
3

Vegetable and Fruits Producers’ Cooperatives handles high value commodities, while Agriculture Cooperatives docrops and agricultural inputs.

8While focusing of Saving and Credit Cooperatives (SACCOs), the number are as follows in four
districts:
Table 5 – The Number of Saving and Credit Cooperatives (SACCOs) in Study Districts
District

Total No. of Saving and Credit Cooperatives (SACCOs)

Kavre

461

Dolakha225

Ramechhap

205

Sindhuli

134

Source: Department of Cooperatives (2012), Ministry of Cooperatives and Poverty Reduction

4. Challenges of Microfinance in Nepal

There are several challenges regarding rural development and reducing rural poverty. They arelisted as follows:
Lack of microfinance in mountains and hilly areas. The severe challenge of microfinance in
Nepal is lack of prevalence of MFI branch in the mountains and remote hill districts. The
MFDBs have to also consider their financial sustainability so they cannot broaden their services
in rural and remote areas where the access of transportation scarces. As a result, MFDBs havestill low coverage of the program in the hill districts and interior parts of the terai districts.
Heavy concentration in accessible areas. MFDBs’ financial programs heavily concentrate inaccessible areas, particularly municipalities and accessible VDCs. So many people are getting
the financial services in those areas compare to rural and remote areas.
Overlapping of the program. As microfinance services are focused on accessible areas such asplain area of terai and accessible VDCs, the MFDBs come to face the challenge of overlappingof the programs in those areas in terms of geographical space. So it also causes unfair
competition between MFIs in terai region.
Program is not strictly confined to the poor. The microfinance program is not strictly confinedto the poor so there is the high possibility of bypassing the target groups and selection ofrelatively credit worthy clients.
Less participation of disadvantaged groups. Nepal is multi-ethnic country and people still
consider about the caste system. Sometimes it brings the division between the people from two
different castes, and in the case of microfinance program, lower caste people hesitate toparticipate in microfinance as they want to keep themselves passive socially and economically.
9

As a result, the participation of disadvantaged people in microfinance is comparatively low.
Limited information of microfinance to the households in remote area. The problem of limited
information to the households about the availability of microfinance is severe, particularly it canbe seen in the remote and inaccessible areas.
No microfinance service is available for migrated people. The people who migrate to town andurban areas from rural and remote area, cannot get microfinance due to their temporary natureof stay in the program areas.
Supply based approach. Supply based approach of the program on the presumption that supply
creates its own demand.
Inadequacy of skill training and support activities. There is also serious challenge of
inadequacy of skill training and support activities for generating demand for credit and its
productive use. Moreover, there is also lack of entrepreneurship for undertaking income
generating activities on commercial scale.
Poor Banking Culture. The elements of good banking are not well developed in Nepal, whether
among bankers and customers too. Informed lending decisions are difficult as many clients failto maintain or disclose good financial information on their activities. In other hand, the banks
also feel difficulty to balance between credits and savings as they comparatively focus on
increasing their customers rather than to provide financial service to the real customer, the poor.
Regulation and supervision. The legislative framework is control oriented. The MFDBs andSaving and Credit Cooperatives cannot deliver their services freely. Even Saving and Credit
Cooperatives at village level should be registered and supervised to receive external credit.
Financial viability. It refers to the capacity of MFIs to provide continued access to financial
services in the long-term. In order to do this, they must ensure that the savings and credit
services provided meet the needs of their clients and do so in a financially sustainable manner.
Limited capacity. Most of MFIs suffer from human resource and systems deficiencies. They
display significant weaknesses in financial managerial and strategic management capabilities. In
particular financial management, internal controls and recording, analysis and reporting of key
performance indicators is generally very weak, and has not been encouraged by the availabilityof cheap capital and general supply-drive.
Lack of coordination. Financial Service providers including MFIs have not coordinated theirefforts to any large extent, neither terms of outreach such as mapping, expansion planning nor
industry performance monitoring takes place. MFDBs and FINGOs are under the supervision of10

the central bank whereas SACCOs are under the supervision of Department of Cooperatives andthe National Federation for Savings and Credit Unions in Nepal (NEFSCUN). There is lack of
coordination between those supervision bodies.

5. Challenges of Microfinance in Target Areas (Project Fields)
Bhimkhori (Kavre)
Not enough financial services. The farmers are not getting financial services from MFIs in thisarea. They are getting loan from the landlords. The interest rate is 24 percent. If someone
borrow loan for going abroad, the landlords charge 36-48 percent of interest rate. Although they
have to pay high interest rate to the landlords, they are willing to borrow from them because of
the procedures of MFIs are complicated.
Utilization of loan. The farmers use their loan on daily family needs rather than financial
purpose. They have very less idea how to use their loan in agricultural sectors in order to get
maximum productivity.
Lack of savings. The farmers have less habit of savings. They have lack of plan that what they
are going to do when there is an emergency need of fund.
Ratanchura, Ratamata (Sindhuli)
Active cooperatives. In these areas, cooperatives are more active than MFDBs. Among them,
agriculture cooperatives have comparatively high transactions in agriculture sector because thetotal saving amount is comparatively low in comparison of the total amount of loan.
Insufficient loan. Some project-base donors lend the farmers some loan, but it was insufficientfor them. In that case, they usually get the loan from informal sectors.
Difficult to repay. The farmers who work in livestock feel defficult to repay the installment ofloan on time because certain time is needed to get the output from their business.
Hattitar (Ramechhap)
Lack of fund. The famers who are running cooperative, are facing lack of fund. Even they invest
the loan and get the interest for the loan, it is insufficient to invest in agriculture sector.
Need of fund and skilled staff. The farmers of this area need either rotating fund or donors to run
11their cooperatives. Furthermore, most of the cooperatives need skilled staffs to smoothen theiroperating system.
Inclusive finance. Most of the farmers in Hattitar are focused in fishing. So they need inclusive
finance in which the fishermen can participate easily. This area has comparatively less access of
MFIs so the farmers need make their groups and cooperatives to cope with financial problems.
Need of community development fund. Most of the farmers are willing to have community
development fund to develop the infrastructure which will boost their socio-economic activies
such as drinking water development program, etc.
Boch (Dolakha)
Access in MFI. Compare to other project area, farmers form this area have access in MFIs tosome extent. However, there is high possibility of misusing the loan in household sectors rather
than the topic they have borrowed for.
Active women group. In Boach, there are approximately eleven cooperatives including four
SACCOs, and 7 other women groups and community finance. As it is near from District
Headquarter Charikot, this area is comparatively active in financial activities.
Lack of cooperative education. Even though, there are plenty of cooperatives in this field, mostof the farmers have lack of knowledge about cooperative. So the capacity development of the
farmers is pressing issue to develop the commercial cooperative in this area.
Lack of saving habit. The farmers have no habit of saving their money in cooperatives or banks.
Instead of saving in banks, most of them put their money at home as they are busy on their daily
works. Some of them take a loan from bank to go abroad for work, and some of them use theirloans to buy a land in urban area. So the farmers have less sensitivity of using their loan inagriculture sector.

6. Potentiality of Microfinance including Hello Paisa in Project Area
Potentiality of Microfinance in Project Area
Observing the project areas in four districts, there is high potentiality of microfinance especiallythe cooperatives. However, some points we need to be conscious to develop the outreach of
MFIs in these areas. Most of the farmers claim that the interest rate of MFDBs and FINGOs are
12high such as 18 to 25 percent interest rate in loan, and less interest rate in savings such as 8
percent. Furthermore, the operational aspects for applying loan are also quite complicated andlong process for the farmers. So MFIs including MFDBs, FINGOs and other banks should
notice the real voice of farmers in order to broaden their activity in rural and remote areas.
On the other hand, the cooperatives get enough funds if MFIs enlarge their services in rural
areas including the project areas. In order to access in field areas, MFIs also need some kind of
incentives and financial cooperation from the Government and international donors. Moreover,
MFIs can organize capacity development programs and broaden the information about
microfinance among the farmers in project areas that would be the win-win relation between the
farmer and bank.
Hello Paisa
Hello Paisa is a platform that allows multiple financial institutions and mobile companies tocome together to offer mobile financial services (MFS) that is not possible to do in Nepal. The
Hello Paisa system takes banks and its customers beyond branchless banking and empowers all
the players: customers, banks, and mobile service providers with state of the art MFS.
Thus, for the customer, the experience is a seamless one. A customer of any partner bank of theHello Paisa platform can:

Use the branches and Hello Paisa Operators (HPOs) of all the member banks



Send and receive money among each otherCustomer can have a mobile SIM number from any of the major mobile services in NepalAll monies / funds of the customers is always with the related partner Banks of the Hello
Paisa platformIs highly secure and safe

Finaccess Private Limited, the creator of “Hello Paisa”, has always been a pioneer in innovative
services. Through the Hello Paisa platform, they are introducing total MFS and within thisbranchless banking for the first time in Nepal. The innovative product umbrella of Hello Paisa
gives the people of Nepal complete convenience and empowerment that they have always
wanted in life.
Hello Paisa is not just limited to banked customers. With Hello Paisa, customers have access tothe easiest way to conduct their financial transactions, whether they are related to paying bills,

13

sending/receiving money within Nepal, receiving money from abroad, purchasing airtime for
their mobile phones or making merchant payments.
No longer do people have to travel long distances, wait in long queues at banks or beconstrained by limited working hours. Any person can use Hello Paisa services by visiting theirnearest Hello Paisa operator locations, or partner bank branches. As of November 2012, there
are hundreds of Hello Paisa operators offering these services all over Nepal.
The services offered by the partner Banks of the Hello Paisa platform are and have to beapproved by the Nepal Rastra Bank, and thus, everyone can enjoy secure branchless banking
service through Hello Paisa with instant transactions.

Potentiality of Hello Paisa in SRCAMP Target Area
Among the field area, the farmers from Boch are familiar with Hello Paisa. In Boch, the farmers
have started to get the service of Hello Paisa since four months ago. The service of Hello Paisa
is limited on savings for the first six months; the other services can be obtained afterwards.
Charikot, the district headquarter of Dolakha is nearer to Boch so Hello Paisa is well known forsome farmers.
There is an enough possibility of the growth of Hello Paisa as it is free of cost for opening
account and saving amount is also voluntary. The interest rate of saving is 4 percent. Five14

commercial banks (Laxmi Bank Limited, Sidhhartha Bank Limited, Bank of Kathmandu
Limited, Commerz and Trust Bank Nepal, and International Leasing and Finance Company
Limited) have made alliance to provide the service of Hello Paisa so the customers can get theservice any branch of those banks. While withdrawing money, the charge of withdrawing
amount up to NRs. 10,000 is NRs. 10, and withdrawing amount up to NRs. 50,000. The farmers
in Boch have claimed that the future of Hello Paisa is bright in that area.

7. Good Practices of Microfinance in Nepal
This paper will describe the good practices of microfinance based on the good records ofmicrofinance service delivery in Nepal. For this purpose, this paper has chosen Nirdhan Utthan
Bank Limited (NUBL) as an example of MFI that has good practices in microfinance services.
With the discussion of some essences that NUBL is applying, other MFIs can also get reference
from these practices.
(i)

Contents of Activity

Strategy to cover poor. Most of the MFIs have the client selection criteria that focus the poor
households. Furthermore, MFIs start their financial services with small loans and provide repeatloans if the previous loans are repaid on time.
Management practices. MFIs are committed at the highest levels of management to the deliveryof financial services to the entrepreneurial poor and to micro and small business owners wholack access to traditional sources of capital. Furthermore, MFIs have streamlined their lending
procedures and developed accurate loan approval, disbursement and collection methods for
maximum efficiency. In addition, MFIs have established training wing within their organizationthat regularly organize training events or using external people to train the staff for bestpractices and operating procedures of microfinance. MFIs also have affiliated with their
networks to learn and share with regional microfinance partners through practitioner forums andassociations. For instance, MFDBs, SACCOs and FINGOs take membership with their networkorganizations to create the opportunities of sharing and communicating their practices andexperience.
Institutionalization. MFIs have arranged several elements to make the institutions strong such as-

Formal personnel rules for human resource management-

Formal accounting and loan tracking manual-

Internal audit and external audit system
15-Loan and saving manual-

Client and staff capacity building process

Vision for growth. Most of the MFIs are now aware of being financially viable that ultimately
require a reasonable numbers of clients to be served. In this regards, MFIs are deepening theirprogram within the existing working area. Furthermore, some MFIs have developed theircapacity to serve large number of clients through the opening of new branches.
(ii)

Methods and Cost of Activity

Managing costs. Operating costs are being kept low and tightly managed by ensuring that eachbranch is managed as a separate cost centre that must reach certain performance targets. Similartargets are set for individual staff and, although basic staff compensation packages are low, there
are incentives built to reward individuals that meet and surpass the targets such as the number ofclients served, loan portfolio managed, repayment rates, etc.
Charging appropriate interest rate. Microfinance programs are charging an appropriate interest
rate to cover their cost (operating cost, financial cost, loan loss provision and inflation).
Offer of customer friendly financial products. Terms and conditions of savings and loan
products should respond to the particular needs of the client group. In this regard, MFIs havestarted continuous market research for product innovations.
Risk management. Several MFIs have focused on risk management and operate following
essences:-

Establishment of emergency or social security fund.

-Linkage between deposit insurance and credit guarantee corporation for livestock insurance.

-

Loan repayment funds and savings collections are immediately disbursed in the field toprevent from robbery or attack from external people.

-

Public audit/ interaction meetings/ borrower’s workshops are conducted to motivate people
for timely repayment of loan.

Geographical coverage and target market. MFIs select the clients according to theirsocio-economic status in targeted area. For instance, a family per capita income less than
US$ 56, and women having less than 0.25 hectares of irrigated land or less than 0.5 hectares of
un-irrigated land per five-person family, the member being a permanent resident of the bankworking area, etc.
16Management practices. MFIs streamline their operations with a commitment to serve the poor.
Management information system (MIS).

Some MFIs apply computerized MIS software, it hasloan tracking system and accounting system. MIS produces the report that requires submitting
regulatory authorities.
On the other hand, this paper focuses the good practice of vegetable cooperative (Shree Jana
Jagriti Vegetable Producers Cooperative Limited), located at Dhulikhel in Kavre, and refer someunique idea that would be useful for the agriculture development in project area.
Name of Cooperative – Shree Jana Jagriti Vegetable Producers Cooperative Limited(Established at 1998)
Share members – Approximately 1000
Borrowable loan – maximum NRs. 30,000 (without collateral), NRs. 500,000 (with collateral)
Interest rate of loan – 14 percent
Interest rate of child saving – 10 percent
Interest rate of saving – 9-10 percent
Interest rate of emergency loan – 7 percent
The two unique elements that Shree Jana Jagriti Vegetable Producers Cooperative Limited has
operating is i) Agriculture Clinic, and ii) Nursery Servicei)

Agriculture Clinic.
Agriculture Clinic is opened twice a month (1st and 15th of every month in Nepali
calendar) and agriculture specialist will consult the problems of farmers and give anappropriate advice to them.

ii)

Nursery Service.
This cooperative has tunnel house with nursery of vegetables and fruits. If some farmers
could not produce quality nursery, then they can buy nursery from this cooperative withreasonable price. The cooperative has recruited one staff to operate this nursery service.

With the reference of NUBL and Shree Jana Jagriti Vegetable Producers Cooperative Limited,
SRCAMP can get some positive references to extend the services to the farmers to encourage on
producing qualified agricultural products.

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8. Countermeasures of Microfinance in Project Area
This paper has analyzed countermeasures of microfinance as opportunities of microfinance. So
with observing existed opportunities in microfinance, it would be easier to think
countermeasures of microfinance in project area.
Opportunities
Supportive government. Government of Nepal (GoN) representatives are supportive of thedevelopment of microfinance as a part of an inclusive finance sector, and the Development Planof the country seeks to promote rapid, equitable and sustainable economic growth and thepoverty reduction.
Sufficient and cheap capital for on-lending. GoN funding structures supporting the delivery of
microfinance as targeted poverty reduction activities provide loan capital at sub-market rates to
MFIs. On the other hand, wholesale lender MFIs Rural Microfinance Development Center(RMDC) and Sana Kisan Bikas Bank Limited (Small Farmer Development Bank Limited,
SFDBL) also provides some training and whole lending to MFIs and Small Farmer Cooperative
Limited (SFCLs). In addition, many commercial banks invest the required percentage of
portfolio for the ‘deprived sector’ lending in MFIs, either as loans or equity. Thus, there isplentiful supply of cheap capital for on-lending.
High unmet demand. Significant growth of deposits and lending since 2002 suggests substantial
excess demand and the subsidized microfinance available does appear to replace higher-cost
informal borrowing among the poor from money lenders. So microfinance sector has stillenough scope to broaden its services to meet the demand of loans.
Critical mass of bank-ready clients. The sustained achievements of many local community
development projects, including international donors-supported projects, results in the existenceof a large potential client-base that can be mobilized for saving and credit groups. So if MFIs
can access into those groups with effective microfinance schemes, then there is huge
opportunity to develop the microfinance sector.
Business support services for financial service providers (FSPs). Successful MFIs maintain asocial mission by targeting the low income people by providing their services. For that FSPs
need a range of business support services such as auditors, rating agencies, credit reference
bureaus, cash-in-transit service providers, insurance agencies, IT support, trainers, consultants,
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etc.

9. Recommendations of Microfinance in Target Areas (Project Fields)
Enter in project areas. Many MFIs need to enter the project areas with microfinance services topoor. As the challenge of microfinance, most of MFIs are interested in delivering their services
in accessible areas. Most of the project areas are in remote area so comparatively few MFIs areproviding services there. So MFIs including MFDBs and FINGOs should enter in project areas
with reasonable interest rate.
Make easy to participate disadvantaged groups. MFIs can play an effective role to include
disadvanged groups into their services. They should make their service procedures such as
membership, registration, etc simpler to attract ordinary farmers too.
Encourage women. MFIs should encourage women more to utilize the loans and begin theirsocial entrepreneurship. For that purposes, MFIs should give women including farmers thecapacity building training and give them basic knowledge of rotating their loans in theiragri-business.
Replication and simplified methodology. Replication of successful MFIs in project area would
be effective way to broaden the knowledge of microfinance. In addition, MFIs should follow
simple methods in operating systems to make many farmers participate in microfinance.
Coordination between GoN and MFIs. Coordination between GoN and MFIs is pressing issue toinnovate appropriate policy to access microfinance services in remote area.
Simplification of microfinance policies. Simplified microfinance policy is helpful to theuneducated clients for using microfinance. Nepal has several models of MFIs and every modelis based on different acts and rules which may make the customers difficult to use microfinanceservice. This problem is also exists in project area so MFIs should become simpler to include
many poor.

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References
Deprosc-Nepal, Ledgerwood, Joanna (1997) “Critical Issues in Nepal’s Microfinance
Circumstances”, IRIS.
Dhakal, Nara Hari “Emerging Issues in Nepalese Micro Finance Sector”---------- (2007) “Towards Expanding the Frontier of Microfinance Services in Nepal”, FAO.
GoN/MOAC (2011) “The Project for the Master Plan Study on High Value Agriculture
Extension and Promotion in Sindhuli Roan Corridor in Nepal”, Progress Report, JICA, KRI.

Sharma, Namrata (2002) “Making Microfinance Work in Remote and Rural Areas with
Low Population Densities”, a paper prepared for the Micro-Credit Summit+5, New
York, USA. CMF.
Online Sources
Boston University Center for Finance, Law and Policy, “Financial Inclusion Guide”
http://www.bu.edu/bucflp/countries/
Hello Paisa
http://www.hellopaisa.com.np/

Mix Market – Chhimek Microfinance Development Bank
http://www.mixmarket.org/mfi/cbb

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