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Micro-finance in Nepal

  Problems abound


No micro-finance initiative in Nepal‚ be it donor funded like the Poverty Alleviation Fund or the government or non-government ones‚ is in position to quantitatively establish the number and proportion of population they have helped graduate out of poverty

The intensity of devotion with which Professor Mohammad Yunus, the Nobel Laureate Grameen Bank guru from Bangladesh was greeted recently in Kathmandu was a testimony to a devotion of the large community of micro-finance professionals to the cause in Nepal too. However, despite Nepal’s own history of micro-finance being at least as long as that of Bangladesh, poverty remains chronically widespread and deep-seated among the people particularly at the lower echelons of society, even as it has been the remittances from abroad that have contributed to the rather dramatic reductions in Nepal’s poverty in recent decades.

However, Nepal’s own self-styled micro-finance gurus have not been lagging behind in claiming to have extended the service to many million people as was done recently in the buildup to the upcoming Micro-finance Summit 2013. But the fact is that they remain unable to explain why this decades old programme has failed to establish itself as a significant instrument of poverty alleviation in Nepal. This is one major challenge that the Summit must address, if the event were to be more than mere pomp and show as was the case with its earlier two editions.

For instance, the second Microfinance Summit held in Kathmandu in 2010 and participated in by some 800 mostly rural MFIs in the country had taken note of many problems facing the sector, and its Declarations comprised of 18 different resolutions designed to address those serious anomalies. However, the organizers of the event—-maybe, our own version of “lords of poverty”—simply failed to work on any of those resolutions during the three years that have since passed, and are now unabashedly on their way to presiding over the third summit, clearly to stay in the limelight to say the least.

While the country is literally saturated with a vast multitude of self-help microfinance institutions (MFI) at the grassroots and the major ones in Kathmandu, they suffer from many serious shortcomings, rendering most such MFI initiatives only of cosmetic consequence. Take for instance, the case of Rural Microfinance Development Centre (RMDC), a major government-promoted bulk-lending MFI established in 1998 that also chooses to be at the forefront of national debate on the subject. While the Centre’s stated goal is to “improve the socio-economic conditions of the majority of the poor, the landless and the asset-less”, it is unable to state quantitatively the extent to which it has fulfilled its mandate. Its glossy reports only make vague claims of having contributed to poverty alleviation and much more in the country. While the organization’s planning and reporting procedure are simply not geared to generate such vital information, this one single lacunae on the part of this major lending organization sets off an epidemic of sorts by transferring this very weakness to the vast army of rural MFIs that depend on the former’s finances.

However, RMDC shares this sin with many other MFIs in the country. A meticulous tracking of who actually benefits from such poverty reduction initiative is all the more necessary in Nepal, given the fact that poverty is generally associated with the caste ethnic status of the people. For instance, the third Nepal Living Standard Survey has reported that the dalits continue to remain worst hit by poverty, 44% in hills and 38% in the terai. This means that all poverty reduction initiatives including microfinance must ensure that the poor dalits have priority access to those programmes. But none of these major MFIs have installed a planning system that allows for such targeting of these services exclusively on the poor including the poor dalits. Besides, these MFIs’s presence remains crowded in accessible areas only, thus introducing another serious distortion of competitive multiplicity of institutions, allowing local people to borrow from Paul to pay Peter.

As things stand, no micro-finance initiative in Nepal, be it donor funded like the Poverty Alleviation Fund or the government or non-government ones, is in position to quantitatively establish the number and proportion of population they have helped graduate out of poverty. Lately, the sector has even been infected by private sector interest, i.e to maximize one’s profit by lending to the poor. In this pursuit, quite a few of these major MFIs even resort to what, in their trade, is known as “parking”. They take the money from commercial banks under NRB-mandated Priority Sector lending, ostensibly for onward lending to the poor, but end up depositing those huge funds in those very banks, thus earning an interest for themselves. As long as the sector remains plagued by such serious anomalies, it can never establish itself as a potent instrument of employment promotion and poverty reduction in the country, despite the sound and fury occasionally generated by such events like micro-finance summits.

The urgent need is to look at the various discrepancies plaguing the micro-finance sector, and devise the necessary means and ways to make it vibrant so that it can achieve the objectives of alleviating poverty and self-employment promotion in Nepal which has a very high rate of unemployment.

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