Kathmandu, February 17:

Poverty reduction has been on development agenda since Nepal began periodic development plans some five decades ago. Despite ongoing development efforts, poverty remains rampant in Nepal with approximately 31 per cent of the population living below the poverty line. The incidence of poverty is highest in hilly rural areas, particularly in mid and far-west parts of the country.

The big projects, mostly designed in centre, have already been proven insufficient to fight poverty effectively. It has given rise to several concepts of grassroots development. The concept of micro-finance or micro-credit is one that is aimed at the poorest of the poor through a small loan, often without collateral.

The government practically started micro-finance schemes in 1975 through Agricultural Development Bank. The concept gained momentum after 1993, when the private sector entered the market.

Today, the players in the field include the regional rural development banks, private micro-finance institutions, savings and co-operatives, INGOs and NGOs, in addition to hundreds of informal community groups.

Conceived on Bangladesh’s Grameen Bank model and adapted to the local conditions, micro-finance services in Nepal have reportedly reached over 1.2 million households. This figure represents eight per cent of the population and covers 26 per cent of those living below the poverty line. Dr Harihar Dev Pant, chairman of Nirdhan Utthan Bank, said micro-finance has been one of the few effective tools for poverty reduction for some years. Wherever micro-finance has spread its wings, it has helped poor people cultivate saving culture and accumulate funds for future investments or emergencies as well as access loans for productive purposes leading to higher incomes.

Micro-finance has also led to good governance, participation in political processes, women’s empowerment, social inclusion and conflict transformation, Dr Pant said. However, its reach

and activities have been limited mostly within some semi urban areas and Tarai districts, he said.

“The challenge ahead of MFIs is to expand micro-finance services to rural populace, particularly in hilly and mountain regions,” he said, adding that the micro-finance should accompany programmes on basic education and business literacy for the best utilisation of the credit.

Even the finance minister, Dr Ram Saran Mahat, termed the micro-finance as pertinent tool to fight poverty in developing and least developed countries. In a recently concluded micro-finance summit, Dr Mahat lauded the role of micro-credit in making poor population self-reliant and turning them micro-entrepreneurs. He claimed that the government would assist in expanding micro-finance services to every nook and corner of the country, particularly where incidence of poverty is very high. Dr Mahat, however, urged to avoid duplication and discourage unhealthy competition among the MFIs.

Ganesh Bahadur Thapa, former governor of Nepal Rastra Bank and chairperson of Centre for Micro-finance, also stressed on the need for increasing speed of expansion to reach the targeted population. He suggested that the government should declare poverty reduction goal of reaching out to 2.41 million families with micro-finance services, women empowerment and business development by 2015.

On the other hand, the recently concluded Microfinance Summit declared reaching two million poorest of the poor families with micro-finance services for their sustainable income by 2010 and a total of three million by 2015. The target will remain on paper unless the MFIs accelerate their activities and diversify products, services and approaches to ensure inclusion of disadvantaged groups such as women, Dalits, marginalised Janajatis, socially and geographically excluded all over the country. The government must be proactive to ensure the MFIs reach the targeted population with their activities in the hills and mountains.

Thapa, however, stressed the need of mapping of MFIs and their services first. “Although Tarai and some semi-urban areas are better served than hills, when it comes to socially outcast and deprived class, the depth of coverage is not satisfactory. Absence of information about inclusiveness is an impediment,” said Thapa. It raises the doubt whether it has catered to the target population — the people below the poverty line, especially socially excluded, women and geographically disadvantaged groups — and whether the loans have been effective at ending their poverty. The MFIs reportedly charge higher interest rates on money lent to their clients, which needs to change if they want to reach the poorest of the poor. The scheme should be extended to the poorest section of the population and to remoter, wider areas. They need to lower interest rates.

Man Bahadur Biswakarma, a member of the National Cooperative Development Board, is contemplating to shift the project-based approach of MFIs to institutional development and capacity building of the poor.