Supply/Availability of Wholesale Funds for MFIs in Nepal: Challenges and Problems

This paper explores the drying up of funding to MFIs in Nepal, and offers some solutions.

Nepalese MFIs are funded by commercial sources and wholesale institutions under the deprived sector lending scheme. The scope of the deprived sector is being made broader, with available funding under the scheme being diverted to the Youth Self Employment program. This has resulted in drying up of funds to the Nepalese microfinance sector. MFIs are in a rush to tap scarce resources that are becoming increasingly costly.

The Nepal Rastra Bank needs to promote a policy that allows MFIs to mobilize deposits from the general public in order to increase funding for MFIs. The paper states that:

• Large MFIs should be encouraged to serve the missing middle;
• Tax on microfinance development banks should be lowered, so that the amount saved can be used to provide services to more poor people;
• Government should provide grants to MFIs to expand their services in remote and un-served areas of the country;
• MFIs should also seek international and web-based sources of financing.