Kathmandu, March 19:

About 38 per cent of Nepali households prefer to borrow money from the informal sector including family, friends, moneylenders or employers.

While the rates of interest charged by the informal sector, unlike the common belief, is almost the same as banks if not more, it is the easy procedure with which money is made available that is the major attraction, points out the 2006 Access to Financial Services Survey, conducted by the World Bank in collaboration with Nepal Rastra Bank.

Aurora Ferrari, World Bank private sector development specialist and the key person behind the survey, released the report to the media this evening. The findings of the survey will be formally released and held up for discussion with captains of various industries and commercial banks at an extended session on Tuesday.

The year-long survey, pointed out Ferrari, examined Nepal’s supply and demand for financial services and constraints to increasing access, besides coming up with recommendations for making the Nepali financial sector work.

The study is based on a nationally representative survey of about 1,800 households from the Terai, hills, rural and urban ares and analyses households and small business access to financial services, the performance of the micro-finance sector and how commercial banks currently serve small businesses.

Highlighting key findings of the survey, Ferrari said a study of the financial services of the country in the last 10 years indicated a clear decline. Financial non-government organisations and cooperatives have proved to be the largest providers of credit in Nepal.

“In fact they serve 41 per cent of the households here, that is more than the banks,” she claimed. These institutions are not just the preferred providers for low income households but are popular even among wealthier households.

One of the major findings of the survey indicated that the lengthy and cumbersome procedures of banks proved to be a great deterrent for people. That probably explains why only 26 per cent of Nepali households have a bank account.

The survey also revealed that while the micro-finance sector had ample liquidity or cash, it did not transform into loans. “This could be partly because of the conflict ridden situation, but primarily because people lack knowledge of accounting which is required to run a complex business like micro-finance,” pointed out Ferrari.

The study would be followed by a dissemination project, funded by a World Bank grant of approximately Rs 30 million, informed Sabin Raj Shrestha, senior financial sector specialist and co-author of the report.