At the micro level
The realisation that big-ticket projects and lending to big borrowers alone is not enough to fight poverty effectively in Nepal has given rise to several concepts of grassroots development. The concept of micro-finance is one as it aims at the poorest of the poor through a small income-generating loan, say, of several thousand rupees, often without collateral. It has caught on in a number of developing countries. Started in 1975 by the government through its agricultural development bank, the concept picked up momentum in Nepal after 1993, when the private sector entered the market. Now, the players in the field include the government, with its rural development banks, private micro-credit banks, co-operatives, and NGOs, bringing the total to several dozens, in addition to the emergence of informal community groups in a number of places. Conceived on the Bangladesh model and adapted somewhat to the local conditions, micro-credit in Nepal is reported to have reached more than two million people.
Two of the most important criteria for measuring the scheme’s success are whether it has catered to the target population – the people below the poverty line – and whether the loans have been effective at ending their poverty. Outside these limits, micro-credit would lose much of its raison d’etre, because it is supposed to service the people left untouched by commercial banking. One major obstacle to efforts to reach the target population in the hilly areas is the wide dispersion of families, and it would not be economically viable for any micro-credit agency to set up shop there, as it would not be able even to cover its operational costs. These factors have discouraged micro-credit agencies from reaching out to this group of people.
All this has led micro-credit agencies to concentrate in urban and easily accessible Tarai areas. As a result, there has been a lot of duplication, as several agencies have lent to the same families, though the concept of micro-credit is basically “one family, one loan”. Such multiple loans may, on the one hand, overburden the borrowers, reducing their ability to repay, and, on the other, these could increase the lenders’ volume of unrecoverable loans. Micro-finance units are, however, reported to be running at a profit generally, but their rate of return has not been high. But the interest rates they charge are. Micro-credit is reported to have been able to improve significantly the economic condition of over half of the people covered. Though this is no mean achievement, the scheme should be extended to the poorest section of the population and to remoter, wider areas. The need to lower interest rates and to do away with collateral for a loan would go a long way in that direction. But the question arises, who would soak up the loss from operating in remote, hilly areas? These and related problems have to be solved to get the most out of micro-finance. The government could play an important role in this, for instance, perhaps as an initial loss-absorber for units who venture to go and work in difficult parts of the country. At the same time, greater community involvement should be stressed.