Towards Expanding the Frontier of Microfinance Services in Nepal

This paper looks at the reasons why the outreach of microfinance services in Nepal has been confined to the small, relatively less poor segments of the rural population living in accessible districts and has been unable to reach the large number of vulnerable poor living in remote hills and mountain districts. The paper examines:

• The context of microfinance operation and the landscape of microfinance service providers (MSPs) in Nepal;
• Product and service delivery methodologies, outreach, cost structure, efficiency and productivity and portfolio quality of leading microfinance institutions (MFIs).

The study finds that:

• The Nepalese microfinance sector reaches 37% of its potential market with access concentrated in accessible areas and very limited access in inaccessible hills and mountains;
• While commercial MSPs are successful in penetrating urban areas, community- based MSPs have better penetration in inaccessible areas;
• Over 55,000 Savings and Credit Groups (SCGs) promoted by government and non-government sectors exist throughout Nepal, but are not used to their full potential;
• While cost structures and delivery methodologies are barriers to commercial MSPs, capacity and resource constraints undermine the potential of community-based MSPs.

The paper concludes that inclusive financial services in Nepal can be promoted by:

• Linkages of commercial MSPs with SCGs that exist in inaccessible hills and mountains areas;
• Partnerships of apex institutions with community based MSPs on capacity enhancement and access to loan-able fund.