Nepal’s banking industry has traditionally relied on brick and mortar (B&M) branches. This B&M structure is geographically cost-prohibitive, requiring a certain market size to be profitable. As a result, many financial institutions are reluctant to open branches in remote areas, leaving many people in Nepal’s rural communities without access to financial services.
Even where branches have been established, cultural norms may leave potential clients, especially poorer and illiterate clients, hesitant to visit a bank or microfinance branch. These factors contribute to the fact that just 40% of Nepalis are formally banked (Class A-D institutions). Women are disproportionately served (36% banked) in comparison to their male counterparts (45% banked) as are those living in rural areas (36% banked) in comparison to those in urban areas (56% banked).
Bank and financial institutions including Microfinance Institutions (MFIs) help to overcome this challenge by bringing finance directly to clients, holding centre meetings at local, convenient locations. However, the current practice is to conduct the loan and savings transactions manually during the centre meeting. The payment is collected from the client and the amount is recorded in his/her pass book as well as the bank’s books as a receipt. With 25+ clients at one centre meeting, this process can take 1-2 hours per meeting for the loan officer and about the same time for entering this data into a computer back at the office. This leaves little time for other activities, including financial literacy.
UKaid-Sakchyam, a DFID-funded project committed to providing access to finance in the most remote and unserved parts of Nepal, is equipping bank and non-bank agents with technology to increase efficiency and make room for other activities during the group meetings.
Banking agents are ultimately an extension of the financial institution and can be retail vendors, communication outlets, post offices, etc. Agents are equipped with technology (usually a POS machine, tablet, laptop or mobile phone) that allows them to process the transactions and transmit the information back to the financial institution. They can process everything from payments to deposits, withdrawals, and money transfers. By employing technology, the process has become more efficient, reducing the overhead costs for financial institutions, increasing agent and employee productivity and retention, and freeing up clients’ time for other productive uses.
In 2015, UKaid-Sakchyam began an initiative with Kisan Microfinance Bittiya Sanstha Ltd. (Kisan Microfinance) in the Mid-Western Development Region (MWDR), deploying 61 tablets in the field to electronically record clients’ transactions in real-time. Clients also receive a confirmation either via an SMS message or a printed receipt. To date, over 2,500 clients are benefitting from the initiative. Kisan Microfinance reports that the technology has reduced the time required for outreach and monitoring activities by 50-70% in comparison to the traditional recording system and gives the loan officer time to pursue other areas of the business. They also report a cost savings in delivering financial literacy through the tablets versus traditional classroom-based modules.
With lessons learnt from the above partnership, UKaid-Sakchyam has now teamed up with Chhimek Laghubitta Bikash Bank Ltd (Chhimek), a Class “D” Microfinance Development Bank (MFDB), to put a new spin on the model. Co-funded by Chhimek and DFID, the project is deploying 104 women, the majority qualified clients of Chhimek, to become agents of the bank. Together known as the digital mahila, each woman is equipped with a tablet. She uses the tablet to electronically-record payments, disbursed loans, and offer financial literacy. Every month, branch managers and M&E officers visit her to ensure compliance with institutional requirements and provide her any onsite support needed.
In addition to the technological innovation, Chhimek’s model is built upon equipping female clients to serve other female clients. This is the first women-led technology campaign in the microfinance industry in Nepal. Studies show that this can help increase outreach and confidence among clients, as the agent understands clients’ challenges, questions, etc., having been through the same process. Moreover, digitally-enabled female agents not only help build their own confidence and familiarity with technology but also that of other group members.
Chhimek’s Digital Mahila is projected to reach 24,196 new loan clients by 2019 with financial services and disburse at least NPR 6.3 billion in loans; 100% of the beneficiaries will be women, and 60% will be from Nepal’s Disadvantaged Groups (DAGs). Over 34 digital points are now in operation, serving over 5,443 clients and disbursing over NPR 338 million.
This is not to say that the project hasn’t faced obstacles including issues with internet connectivity; agents’ safety, especially if handling large sums of money or traveling far distances; identifying and hiring the right agents and supervisors; and, adequate capacity building of agents so they can speak informatively about the FI’s product and service offerings. These are areas that UKaid-Sakchyam and Chhimek are continuing to address.
While it’s too early to assess the long-term results, we are confident that this initiative will continue to offer cost benefits to the microfinance industry while also increasing financial access to women across Nepal.
By Rachel Hartgen, Sakchyam – Access to Finance Programme