Reviewing Microfinance

Microfinance program in Nepal is passing through a critical period. The Financial Intermediary Act. (FIA), 1998 and the Financial Intermediation Regulations (FIR), 1999, which were intended to foster the growth of microfinance were found quite inadequate. This was because of restrictions on savings, renewal requirements, provision for personal guarantee of board members and prohibition on the institutions to invest in equity for transformation into development banks. As such, these regulations have come for review and active consideration of the government for necessary amendment, that could give a big boost to microfinance movement in the country.

The five Regional Grameen Bikas Banks which were established under public sector to serve the poor with financial services, failed to perform according to the expectations because of weak governance, overstaffing, unionism, lack of professionalism and outside interference. Two of the regional banks have already eaten up their equity. The measures taken so far to get these banks back on track have not proved adequate. While the efforts to improve their performance are underway, a proposal is reportedly being examined whether some of these banks should be disinvested for better performance. These observations were made in a meeting of the Grameen Global Network held at the Women Cooperative Society Ltd. on 8th January 2002, in Kathmandu to discuss and review the potential and problems of microfinance in Nepal.

It was encouraging to know that despite restrictive regulations and difficulties faced by MFIs in Nepal, Grameen partners in general were making progress in terms of their outreach, and cost recovery, with the exception of a few who were suffering from fund shortage and the threats from the Maoists. However, to avoid impediments embodied in the Act and Regulations, NIRDHAN, Centre for Self-help Development (CSD) and Neighborhood Society Service Centre (NSSC), the three leading Grameen partners in Nepal, have become full fledged banks under the Development Bank Act of 1996. Whether transforming into development banks is a better institutional option for microfinance in Nepal is to be seen in the future. Among Grameen partners, CSD and NIRDHAN have already achieved operational self-sufficiency at the institutional level. Others are also on track and have achieved self-sufficiency in some of their branches. They could perform better provided they had better enabling conditions to operate in terms of the regulatory framework, availability of funds and working environment.

The role of Rural Microfinance Development Centre Ltd. (RMDC), a wholesale fund created to support microfinance organizations in Nepal was also discussed in the meeting. It was observed that RMDC should be able to provide more financial support to MFIs at a lower rate of interest and it should consider funding start up projects. It should also strengthen capacity building program of MFIs by organizing more staff training and workshops on best practices. The meeting requested Grameen Trust to increase its financial and technical support to its partners in Nepal.

Recommendations were also made in the meeting that in addition to individuals and institutions, Grameen Nepal Network (GNN) should make intensive efforts to mobilise support in favor of amending the FIA and FIR as soon as possible, to help MFIs grow and serve more poor on a sustainable basis.

The meeting was attended among others by Ms. Saraswati Shrestha, Chairperson of GNN, Ms. Bhuvaneshwari Pant, Chairperson of NSSC, Dr. H D Pant, Executive Director of Nirdhan Uthan Bank Ltd., Mr. Shankar Man Shrestha, Chief Executive Officer of RMDC, Mr. Mukunda Bahadur Bista, Executive Director of CSD, and the Managing Director of Grameen Trust.

H. I. Latifee
Managing Director
Grameen Trust

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