Financial inclusion lacks depth in Nepal: NRB, United Nations
Kathmandu, July 15
Twenty-five per cent of the total adult population in the country uses only one type of formal financial service, indicating shallowness in uptake of existing products on savings, payment, credit and insurance, a latest report says.
Around 61 per cent of the country’s total adult population currently has access to formal financial services, show findings of supply side study on financial inclusion conducted jointly by Nepal Rastra Bank, the United Nations Capital Development Fund (UNCDF) and the United Nations Development Programme.
But 9.3 per cent of the adult consumers use formal financial channels just for the purpose of borrowing, another 8.3 per cent for the purpose of payments and another 7.2 per cent for the purpose of savings.
Only seven per cent of the adult population uses all four types of financial products on savings, payment, credit and insurance, says the report launched today.
“This suggests lack of availability of good-quality and relevant financial products,” adds the report.
It is often said that financial products in Nepal are homogeneous in nature and do not cater to the diverse needs of the people. As a result, financial inclusion, in terms of access to financial services, is at a higher level, but it lacks depth because of lower use of financial products. This means many people with access to financial services are not using them as often as they should.
The report has, thus, highlighted the ‘need for access to low-cost, flexible and diverse financial products that are better tailored to the unique needs of the population so that individuals can manage their finances, increase income, manage risks and build wealth over time’.
“The key to financial inclusion is not supply driven approach but demand driven approach,” UNCDF Executive Secretary Judith Carl told journalists, implying financial products should be tailored upon understanding market gaps and opportunities and as per the needs of target groups.
In Nepal, a majority of the adult population falls in the ‘poor and rural’ category.
For instance, 32 per cent of the total adult population is farmers, says the report. Of these, 75 per cent are subsistence farmers, and majority are based in rural areas and have not even completed primary education.
The second largest target market for financial services — approximately 17 per cent of the total adult population — is made up of dependants, says the report. Majority of these people are also based in rural areas and 53 per cent has attained only primary or low level of education.
The third largest target market for financial services — approximately 17 per cent of the total adult population — are irregular earners, such as those who are paid according to the work they perform. Most of the people who fall in this category are again based in rural areas and are the least literate.
“There is lower uptake of formal financial services among the more rural and lower-income group segments, which include farmers, dependants and irregular earners,” says the report.
Delivering his keynote speech during the formal report launching programme, Yubaraj Khatiwada, vice chairman of the National Planning Commission, said: “We must fix time limit of two to three years to reach out to all the people who still lack access to finance. But such process of financial inclusion should be meaningful and generate employment, ensure social protection, lift people out of the poverty trap and improve living standard of people.”
UNCDF Executive Secretary Carl said financial inclusion can work as a key enabler for Nepal to achieve 2022 target of graduating from the league of least developed countries to that of developing nations.
“This is because financial inclusion helps people to send children to school, enables households to pay their medical expenses, enhances resilience of households and facilitates families to cushion economic shocks,” she added.