Nepal: Rural Finance Sector Development Cluster Program

This report to the Board of Directors of Asian Development Bank (ADB) explains the rationale for the proposed Rural Finance Sector Development Cluster Program (RFSDCP) in Nepal. It outlines RFSDCP's components, financing plan and expected benefits and risks.

Nepal has 31 percent of its population living in poverty, of which 95 percent are in the rural sector. The report observes that since access to institutional finance is limited, increased financial intermediation will create opportunities for the rural poor to engage in productive activities. The proposed RFSDCP comprises two subprograms that aim to develop a sustainable rural finance system. The program will have five components:

• Policy reforms to create an enabling environment;
• Restructuring and reforms of rural finance institutions;
• Supportive legal and regulatory framework;
• Capacity building;
• Product and process innovations.

The report proposes that ADB sanction a program loan to enable access and encourage private sector participation in rural finance, as well as a project grant to support the governments rural finance reforms. The proposal identifies risks and mitigating measures, and includes a policy matrix and road map for implementation of the program.