Micro finance refers to the provision of financial services to poor, marginalised and low-income groups. The range of service delivery of micro financing programmes is not limited to savings and credits only. In addition to financial intermediation, many micro finance institutions (MFIs) provide social intermediation services such as group formation, developing of self-reliance, extending social awareness and training in financial literacy and management capabilities.

After a failure of heavily subsidised credit delivery (before 1970s) through state-owned institutions, the trend shifted towards the building up of local sustainable institutions to serve poor people. As a result, new financial concept that provides diverse product and services of high quality to the deprived communities and poor people with a prerequisite of a significant and sustainable poverty reduction impact.

Thus, micro-finance is often referred to be a development tool, since it is playing a significant role in financial and social integration, as well as aiding the betterment of society as a whole. Micro finance is now widely accepted as an economic development approach intended to benefit low-income groups. An éclat success of micro credit has changed the conventional concept of banking in to new horizon.

In the early 1970s, Nepal introduced Small Farmers Development Programme (SFDP) with the objectives of brightening dark corners of poverty through enhancing productivity of agriculture. With the pervasive success and popularity of SFDP within deprived and poor families, the emergence of MFIs accelerated in a rapid way since then. According to a recent statistics, SFDP has already covered more than 150,000 families throughout the country.

Following the revival of multi party democracy in 1990, the micro-financing movement escalated aggressively in Nepal. Since the 1990s governmental and non-governmental organisations launched several rural micro-credit schemes with the objective to uplift the deprived people through providing access to financial services.

There is a wide range of organizations in Nepal providing micro financial services to the poor. They include both institutional as well as community-based ones. In the institutional sector, there are commercial banks, development banks, and financial institutions while in the community small cooperatives and NGOs.

The micro-financing service providers include SFDP, Intensive Banking Programme (IBP) Cottage and Small Industry Project (CSI), Production Credit for Rural Women (PCRW), regional rural development banks, Nirdhan Utthan Bank (NUBL), Centre for Self-help Development (CSD), Centre for Environmental and Agricultural Policy Research and Development (CEAPRED), village banking, Local Governance Programme (LGP) and micro-credit schemes of commercial banks.

Although the coverage of micro credit programmes has yet to reach a large extent of poor families in Nepal, micro financing has significantly helped to raise the status of women, development of entrepreneurship, decline in the interest rates charged by local moneylenders, mobilisation of local savings and has generated income and employment opportunities.

The major unresolved policy issue faced by the micro finance sector in general relates to the definition of appropriate supervisory regulations and systems. Considering the issue of necessity of a national micro finance policy, the government is to execute the micro financing as a most pertinent tool to alleviate poverty in the forthcoming 10th Plan. According to Vice-chairman of National Planning Commission (NPC) Prithvi Raj Ligal on Friday, the government is committed towards creating a conducive atmosphere for the micro finance businesses.