Nepal | July 22, 2019

MFI presence in poor, remote areas low

Himalayan News Service

Kathmandu, September 25

A study report unveiled by Nepal Rastra Bank (NRB)  — the central regulatory and monetary authority — has revealed that the presence of microfinance institutions (MFIs) in highly poor and remote areas is low. The central bank has promoted MFIs and made an arrangement to mobilise credit to the deprived sector to achieve the national goal of poverty alleviation, however the presence of MFIs in remote areas, where poverty is severe, is dismally low.

As per NRB report titled ‘Outreach of Microfinance Institutions and Structure’, presence of MFIs in Karnali Province and Province 7 is the lowest compared to other provinces. A larger presence of MFIs was witnessed in Province 1.

While comparing the population size and the number of branches of MFIs in the provinces, Province 1, where 18 per cent of the country’s population is living has been receiving services through 333 branches of MFIs. However, Karnali Province and Province 7, where six per cent and 10 per cent of the total population reside, are being provided services through 63 and 109 branches of MFIs, respectively. Out of the total branches of MFIs, only four per cent is serving in Karnali Province and eight per cent in Province 7, as per the NRB report.

Likewise, 23 per cent of the total branches of MFIs is centred in Province 1, 21 per cent in Province 3, 17 per cent in Province 2, 15 per cent in Province 5 and 12 per cent of the total branches are located in Gandaki Province.

The central bank had earlier issued a mandatory provision, which states that commercial banks, development banks and finance companies have to lend a certain percentage — at present it is five per cent — of their total lending to the deprived sector directly or through MFIs. Particularly, commercial banks have been mobilising deprived sector credit through MFIs. The objective of the
deprived sector credit is poverty alleviation. However, the presence of MFIs is insignificant where poverty rate is higher.

There were 65 MFIs in operation till the end of the last fiscal with a total of 1.78 million borrowers and 2.85 million depositors. MFIs have mobilised savings worth Rs 44.92 billion. The cumulative lending of MFIs reached Rs 652.19 billion by end of previous fiscal.

The NRB report has revealed that a large number of borrowers of MFIs are involved in trading. Out of the total borrowers, 50.7 per cent are involved in trading, 22.1 per cent in agriculture, 14.3 per cent in livestock farming, 1.4 per cent in government jobs and 11.4 per cent in other sectors, as per the report.

As per the report, a total credit of Rs 111.5 billion was mobilised in the deprived sector in the last fiscal. A study carried out by NRB has said that a large chunk of the credit was mobilised by commercial banks through MFIs. Commercial banks have mobilised credit worth Rs 62.1 billion, development banks have mobilised Rs 3.3 billion and finance companies have mobilised Rs one billion till fiscal 2017-18 through MFIs.


At a glance
Province Poverty rate Branches of MFIs 
Province 1 16pc 333 (23pc)
Province 2 27.7pc 249 (17pc)
Province 3 15.3pc 297 (21pc)
Gandaki 15.2pc 179 (12pc)
Province 5 25.8pc  222(15pc)
Karnali 36.5pc 63 (4pc)
Province 7 42pc 109 (8pc)

(Source: NRB)


A version of this article appears in print on September 26, 2018 of The Himalayan Times.


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