Towards Expanding the Frontier of Microfinance Services in Nepal

Topic :

This study uncovered that Nepalese microfinance sector is reaching 37% of its potential market with access concentrated in accessible areas and virtually no or limited access in inaccessible hills and mountains and concluded that expansion of microfinance services to a large number of un-served and under-served micro-entrepreneurs and poor households living in remote districts is yet a challenge. While commercial microfinance service providers (MSPs) are quite successful to penetrate their services in urban and densely populated peri-urban areas, the community based MSPs have comparatively better penetration in relatively inaccessible areas. On the other hand, over 55,000 Savings and Credit Groups (SCGs) promoted by government and non-government sectors exist throughout Nepal irrespective of remoteness, but not fully used up to the potential level.

Existing service delivery cost structure is a barrier to commercial MSPs to expand their services in remote areas; while such impediment is either does not exist or are at minimum among community based MSPs. Innovation to reduce operating cost is one of the pre-requisites to expand microfinance services of existing MSPs in inaccessible hills and mountains. Further, products and service delivery methodologies deter commercial MSPs to expand their services in inaccessible hills and mountains, while the capacity and resource constraints undermine potential of community based MSPs to intensify their services in their working areas and expand their emergence and growth in more remote areas. Business linkages of commercial MSPs with large number of informal SCGs that even exist in inaccessible hills and mountains areas as well as partnership of apex institutions with community based MSPs on capacity enhancement and access to loanable fund is most effective and efficient alternatives to expand microfinance services in these areas. Such an effort will be instrumental to promoting inclusive financial services in Nepal.

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