Financial Inclusion

The Financial Inclusion component is one of three major components of the Sakchyam Access to Finance Programme. Under this component, the Programme works with Nepal’s Microfinance Institutions (MFIs) including Microfinance Development Banks (MFDBs), Financial Intermediary Non-Governmental Organizations (FINGOs), Cooperatives, and insurance and remittance companies.

Working together, our objective is to make financial products and services inclusive by enhanced access in the programme areas, particularly in rural and difficult-to-reach areas where a majority of the population including the extreme poor, women, and members of disadvantaged groups (DAGs) are un- or underserved. Due to remoteness and difficult topography, physical, communication and institutional infrastructure is limited or non-existent. This results in the exclusion of the majority of the region’s population, from formal financial services.

Our support is focused on the following areas:

  • Branch expansion: Most financial institutions, including MFIs, are currently concentrating their services in district headquarters. Opening up branches in remote and less accessible areas is expensive for them. We help them expand their branches into remote and less accessible areas in order to improve their outreach while maintaining financial viability.
  • Product and service development: Products and services offered by MFIs are largely uniform and do not meet clients’ needs. We help them design, price and launch new, innovative financial products and services oriented toward the poor, women, and DAGs as well as combating climate change. To name a few, we are working with our partners to develop alternative energy, migration, MSME loans along with remittance and micro insurance products, including for the first time in Nepal, weather-based index insurance (WII) to reduce farmers’ risk. We are also promoting alternative guarantee mechanisms, beyond traditional collateral which many poor and underserved groups do not have.
  • Alternative delivery channels: Currently, MFIs and rural clients are limited by limited infrastructure, but mobile technology is changing that. We work with our partners to expand financial access by introducing appropriate technologies including mobile banking and branchless banking.
  • Capacity building: In order to ensure the viability of our partners and our projects long after Sakchyam, we are committed to improving the institutional capacity of our partners and the industry as a whole. We work with our partners to conduct a capacity assessment and create a capacity strengthening plan that focuses on the following areas: 1) Improving MIS 2) Expanding the Outreach; 3)   Enhancing Sustainability; 4)   Improving Efficiency; 5)    Incorporating Client Protection.
    • In particular, we are committed to building our partners’ Management Information System (MIS) working with the NMBA to provide an industry-level software that provides quality accounting and reporting. Second, we are working to connect the industry to the national credit bureau to reduce financial risk and over indebtedness nationwide.
  • Financial Capability: In close collaboration with Component 3, we are working to build our partners’ and their clients’ understanding and uptake of financial products and services through effective and innovative financial literacy. Learn more here.
  • Legal & Regulatory Support: We work with stakeholders to identify and address key legal and regulatory barriers affecting the MFI industry in Nepal. Learn more here.

Interested in being a partner financial institution of Sakchyam? Learn more here.

NUBL

 

Access to Finance in Remote Hill & Mountain Areas and Adoption of new Technologies for Financial Inclusion in Far Western Development Region 

Nirdhan Utthan Bank Limited (NUBL)

 

Background

Despite the successes inthe Nepalese microfinance sector and the Government of Nepal’s strategic support to the same, millions of rural Nepalese- particularly in the hilly districts of mid- and far-western Nepal – still lack basic access to finance.Additionally, for many centuries, Nepali society followed a now-outdated traditional hierarchy system. This belief-based system placed certain people higher in the system than others, considering those placed low to be ‘untouchable’ and depriving them of basic necessities such as education. Communities such as Dalits and Janajatis were reduced to performing pre-determined tasks in society. In these regions, people from such social backgrounds are stuck in vicious cycles. Poverty is a crippling factor with ripple effects – the poor often do not get even primary level education and this leads them to having little to zero literacy in terms of financial behaviour. Poor decision making puts them back on the cycle, making lives harder and seemingly without a way out of such hardships.

 

Challenges Faced

Financial products and services are often designed to cater to urban and semi-urban populations. People of ‘topographically-difficult’ districts, mostly in mid and far-western regions, are either forced to make use of whatever options there are available, or depend on informal sources mainly money lenders to take care of financial needs. Tailored and adopted financial products and services for rural poor are unheard of and the adoption of modern technology, rampant in urban areas, to benefit these rural poor communities, which is an excellent, cost-effective and practical way of providing guidance and training on financial behaviour, is an approach that is yet to see efficient implementation. Capacity enhancement for capable entrepreneurial minds, a potentially sustainable investment toward promoting economic self-sufficiency is largely absent and financial institutions often do not keep in mind profiles of customers when providing services to them.

 

Sakchyam’s Intervention

NUBL will expand access to finance in Darchula, Mugu, Humla, Bajhang and Accham districts byestablishing5 new branchesin rural and remote VDCs in those districts where such services are currently unavailable. They will also adopt technology such as Point of Sale (POS) machines to improve efficiency and transparency while offering financial services by their loan officers in several districts including the 5 new branches. NUBL will provide financial education and entrepreneurship training prior to giving out loans to ensure productive use of loans to improve household economy. In order to stretch the financial frontier in remote areas, NUBL is adopting innovation by introducing Self Reliance Group Approach (SRG) where SRG becomes a financial intermediary between NUBL and clients. To expand access to finance rapidly in those areas NUBL will also use SRG as their agent for financial transaction using POSsimilar to branchless banking unit.

 

Likely Impact

NUBL is aiming to reach 5.040Households with loan and insurance products during five years from their five new branches (4,620 HHs during Sakchyam’s support) and covering 25000 HHs with POS device services. Apart from savings, credit and insurance, NUBL will also offer remittances services to all members and non-members in the areas for which they partnering with over 16 remittance companies.  The target group will be disaggregated into 99% women, 40% youths and more than 43% from Disadvantaged Groups. These targets will benefit from loan capital to be created during the project period of NPR 177 million.

 

Kisan Micro Finance Bank

“Sakchyam Kisan Rural Microfinance Project”

 

Background

Connecting rural poor, DAGs and women to formal financial services for enabling them with choices to save, borrow, invest and earn is one of the core objectives of Sakchyam, Access to finance Program. While enhancing access to finance for people living in the remote and inaccessible regions is the immediate goal of Sakchyam, efficiency and sustainability of financial service delivery to these people are matters of long term concern. Therefore, Sakchyamconceives that there should be paradigm shift in the delivery channels of microfinance sector. This sector should resort to advanced technology to achieve organisational efficiency and expand its outreach in self-sustainable manner.

 

Challenges Faced

Microfinance is considered as expensive service due to high operation cost as it involveshigh administrative and human resource cost. This sector is deprived of sophisticated MIS system until now, let alone other technological innovations that would bring down the cost of catering service to remote areas with poor road network and other infrastructure. They resort to traditional style of doing almost everything manually.Resistance to change is a common phenomenon among microfinance actors. Instead of taking lead at experimenting something new, they rather choose comfortable path of following what has already been tried and tested. In the given scenario, institution opting technology and adopting alternative delivery channel for service delivery is rare. However, given the diverse socio-economic and geographical context of Nepal, adoption of innovative solutions backed by technology is irrefutable for providing easy, convenient, quick and accessible financial services to people living in every nook and corner.

 

Sakchyam’s Interventions

 

Kisan Micro Finance Bittiya Sanstha Ltd. isa ‘D’ class national level financial institution that was established in 2012. It is licensed by Nepal Rastra Bank. It is one of the partners of Sakchyam to adopt mobile technology in its core banking system to extend its services to remote regions of mid and Far Western regions (Dailekh, Dadeldhura, Kalikot, Salyan, Jumla, Jajarkot, Accham, Kailali, Doti, Darchula, Baitadi and Bajhang districts) of Nepal.  Online Management Information System (MIS), Tablet banking as part of the core lending system and Mobile banking are phenomenal interventions proposed by KMF under “Sakchyam Kisan Rural Microfinance”project. These interventions are expected to bring transformational change in traditional way of carrying out microfinance services that is labour intensive and heavily dominated by and contingent on contextual factors such as available infrastructure, geographical integration and scattered settlements. In addition to that, the projectalso ensures access to remittance services, insurance products and financial literacy program that would lead to self-employment opportunities and improved livelihood of the deprived people.

 

Likely Outcome

The project will provide financial services to 25,000 members over the period of three years. Itis likely to set milestone in use of tablet and mobile technology in microfinance sector to bolster organisational efficiency and enhance outreach of the institutions to un/underbanked poor and vulnerable people living in the remote regions of the country. The empowered collection centres by this project will prove that microfinance services can go beyond brick and mortar physical branch and become self-sustainable without regular involvement of their staff by exploiting existing social capital in the community.

 

Kisan Cooperative

“Kisan Tab Banking for Enlargement of Micro Finance “– Kisan Bahuudyasiya Sahakari Sanstha Limited (KBBL)

 

Background

Connecting rural poor, DAGs and women to formal financial services for enabling them with choices to save, borrow, invest and earn is one of the core objectives of Sakchyam, Access to finance Program. While enhancing access to finance for people living in the remote and inaccessible regions is the immediate goal of Sakchyam, its replicability and sustainability are matters of long term concern. Thus, Sakchyam promotes sustainable, efficient, need based project offering tailored products and services that creates win win situation for both service provider (MFIs) and their beneficiaries (clients). ‘Kisan Tab Banking for Enlargement of Microfinance’ is the project that coincides with objective and vision of Sakchyam as it promises innovative breakthrough in the industry.

 

Challenges Faced

Micro finance came into existence to serve those excluded by core banking system as well as exploited by local money lenders who charge exorbitant interest rates&impose strict conditions.Yet, microfinance is costly business owing to its high administrative cost. It is human resource intensive. This sector is deprived of sophisticated MIS system until now, let alone other technological innovations that would bring down the cost of catering service to remote areas with poor road network and other infrastructure. They resort to traditional style of doing almost everything manually. Reflecting back on the history of microfinance, their outreach has expanded to the hills and mountains in the recent days even though these regions are not considered lucrative due to high operation cost. There is still a long way to go for changing the financial landscape of the country to ensure inclusive finance for all.

 

Sakchyam’s Interventions

Sakchyam will support Kisan Bahuudyasiya Sahakari Sanstha Limited (KBBSL), a multipurpose cooperative society licensed by Nepal Rastra Bank for conducting limited bankingactivities, to extend microfinance services inorderto enhance financial access in remote VDCs of Kailali district. Moreover, KBBSL will be transforming its financial transactions recording systems through tablets that is currently being done manually in the centre meetings. Transactions recorded in tablet will get automatically updated in their central MIS system. It will minimize time and cost for the institution and consequently benefit clients. In addition, KBBSL will be hiring local agents as per pre specified criteria to promote branchless banking. These agents will also be providing other non-financial services such as e-ticketing, fast remit &mobile balance transfer. To sum up, KBBSL is piloting new approach under Sakchyam’s support that is blend of both Grameen and Agent model of microfinancing.

 

Likely Outcome

The project will reduce financial exclusion existing in the intervention areas. It is going to transform centre meeting as tablets will replace manual way of recording transactions in the field. Whole microfinance industry is looking at it with great excitement & expectation and looking forward to replicate it once it is tested successfully by KBBSL. Mobilisation of agents will make service delivery quick and convenient.  Use of technology, innovative approach and holistic financial service package (including remittance and insurance) in the project area is going to bring outstanding change for good in microfinance industry by reducing time, cost and human resource that will ultimately benefit members. Similarly, financial literacy is one of the focused areas of the project to advance financial management capability of the members.

Vijaya Laghubitta Bittiya Sanstha

Improvement of Livelihoods of Disadvantaged Members through Access to Finance in
Mid- Western Development Regions
– VijayaLaghubittaBittiyaSanstha (VLBS)


Background
 

Despite the successes in in Nepal of the microfinance sector and Government of Nepal’s strategic support to the sector, millions of rural Nepalese still lack basic access to finance particularly in hilly and mountain districts of Mid and far west of Nepal. In addition to this, for many centuries, Nepali society followed a now-out-dated traditional hierarchy system. This belief-based system placed certain people higher in the system than others, considering those placed low to be ‘untouchable’ and depriving them of basic necessities such as education. Such communities such as Dalits and Janajatis were reduced to performing pre-determined tasks in society.

Although such a belief system that was also biased toward women and racial minorities is non-existent now, in remote regions of the country such as villages in mid-western region, the repercussions of such a system has left long-lasting problems. In this region, people from such social backgrounds are stuck in vicious cycles. Poverty is a crippling factor with ripple effects – the poor often do not get even primary level education and this leads them to having little to zero literacy in terms of financial behaviour. Poor decision making puts them back on the cycle, making lives harder and seemingly without a way out of such hardships.

Challenges Faced

Financial products and services are often designed to cater to urban and semi-urban populations. Members or rural communities are either forced to make use of whatever options there are available or depend on informal sources to take care of their financial needs. Tailored financial products and services for rural poor are unheard of and the adoption of modern technology, rampant in urban areas, to benefit these rural poor communities, an excellent, cost-effective and practical way of providing guidance and training on financial behaviour, is an approach that is yet to see efficient implementation. Capacity enhancement for capable entrepreneurial minds, which could prove to be a sustainable investment toward promoting economic self-sufficiency is largely absent and financial institutions often do not keep in mind profiles of the customers when providing services to them.

DFID Sakchyam’s Intervention

VLBS will work in Dang, Salyan, Pyuthan, Rolpa and Rukum to establish 5 new branches and expansion of the services from one existing branches to rural and remote VDCs in those districts where such services are currently unavailable. They will provide financial education and entrepreneurship training prior to giving out loans to ensure productive use of loans to improve household economy. For financial education they are using technology such as mobile and FM radio programmes.  They will employ the Be With Your Client approach through SMS and voice messages. At the same time they will improve the connectivity of branches through enhanced MIS system that will link branches to their head office that will eventually become online MIS system.

Likely Impact

VLBS is aiming to reach 4,219 households with loan and insurance products, and mobilise 5,860 households with savings. This will create 4,219 SMEs who will benefit from the project.  The target group will be disaggregated into 75% poor, 80% women, 30% youth and 40% from the disadvantaged groups. These targets will benefit from loan capital to be created during the project period of NPR 168.8 million.

UNYC Nepal

Increasing Access of Microfinance Services to Rural Areas of
Nepal’s Mid and Far- Western Regions — UNYC Nepal

 

Background

Despite Government of Nepal’s strategic support to the microfinance sector and the successes it achieved in Nepal, millions of rural Nepalese still lack basic access to finance particularly in hilly and mountain districts of Mid and far west  of Nepal. In addition to this, for many centuries, Nepali society followed a now-out-dated traditional hierarchy system. This belief-based system placed certain people higher in the system than others, considering those placed low to be ‘untouchable’ and depriving them of basic necessities such as education. Such communities such as Dalits and Janajatis were reduced to performing pre-determined tasks in society.

Although such a belief system that was also biased toward women and racial minorities is non-existent now, in remote regions of the country such as villages in far-western region, the repercussions of such a system has left long-lasting problems. In this region, people from such social backgrounds are stuck in vicious cycles. Poverty is a crippling factor with ripple effects – the poor often do not get even primary level education and this leads them to having little to zero literacy in terms of financial behaviour. Poor decision making puts them back on the cycle, making lives harder and seemingly without a way out of such hardships.

Challenges Faced

In the absence of formal financial institutions, people are dependent on local money lenders to fulfil their financial needs. The cost of borrowing from the local money lenders is very high, and often exploitive. Similarly, financial products and services are often designed to cater to urban and semi-urban populations only. Members or rural communities are either forced to make use of whatever options there are available or depend on informal sources to take care of their financial needs. Tailored financial products and services for rural poor are unheard of and the adoption of modern technology, rampant in urban areas, to benefit these rural poor communities, an excellent, cost-effective and practical way of providing guidance and training on financial behaviour, is an approach that is yet to see efficient implementation. Capacity enhancement for capable entrepreneurial minds, which could prove to be a sustainable investment toward promoting economic self-sufficiency is largely absent and financial institutions often do not keep in mind profiles of the customers when providing services to them.

Sakchyam’s Intervention

UNYC Nepal with help from Sakchyam Access for Finance Programme will roll out various products through 9 new branches in Bardiya (2), Kalilali (7) and in Dadeldhura (1) with one branchless banking point. UNYC Nepal will develop a market place within the catchment area of each new branch and will offer entrepreneurship development training to their potential clients. The financial products being developed and offered include loans for productive use, seasonal loans, loans to encourage micro-entrepreneurship, as well as loans for housing, foreign employment and unexpected emergencies. They will also encourage savings on a group basis, individual saving plans, and for children. The skills development will include training in piggeries, pigeon, poultry and goat rearing, vegetable farming, bee keeping, as well as pickle-making.

Likely Impact

The project aims to bring around 15,000 women into the financial system. All of the target groups are from disadvantaged women; especially from indigenous Tharu, Dalit, Muslim, Madhesi, and ethnic communities and women from freed Kamaiya, Kamlahri, Adherawa, and Haliya communities. Further, the eligibility criteria is women with less than 10 katthas of land, or who have no government jobs, or make less than NPR 50,000 as annual earning.

Nepal Women Community Service Center

Promoting Economic Opportunities of Rural Families by Enhancing Access to Financial Services in Un/Underserved Areas of Rapti Zone – Nepal Women Community Service Centre

 

Background

For more than a decade, development in much of mid-western region of Nepal was arrested by a civil war that used its scenic villages as its headquarters. Infrastructure such as schools, health posts, bridges, and numerous government and non-government offices were destroyed.Agricultural and animal husbandry were disturbed as able youth (between 18-39 years) were recruited as guerrilla soldiers.And education took a backseat as schools became command centres. Access to essential services such as education, health and finance were cut off.

Challenges Faced

One of the essential elements required to recover from such destruction is access to financial services. The challenges related to access to finance faced by these communities are:a lack of financial services in rural and remote regions – financial institutions are more likely to open branches in district headquarters than in rural areas; marginalized groups remain as backward as ever; women are overburdened not only by their household chores but also with micro-finance services. Most microfinance institutions target women as their clients – however in many cases, they borrow the cash and transfer it to their husbands. Other challenges are a lack of financial products targeted to remittance-earning Nepalese migrant workers; lack of basic financial skills on the part of rural households; lack of technical skills; absence of use of modern technology to promote inclusive finance; and limited impact assessment of developmental works as and when they happen.

Sakchyam’s Interventions

Sakchyam will support Nepal Women Community Service Centre (NWCSC), a financial non-government organization (FINGO) to enhance financial access in remote areas of Dang, Rolpa, Rukum, Salyan and Pyuthan. The partnership will open 5 new NWCSC branches in those districtswhich will targetwomen and marginalized groups such as DAGs and households affected by the civil war. The branches will continue to provide NWCSC’s various savings and loan products,adapt existing product and or design new products depending on specific client needs. To align their beneficiaries with improved financial services, financial literacy campaigns – to help beneficiaries make informed financial decisions, as well as technical training – to allow locals to start SME/MSMEs, will be launched. NWCSC will partner with Global IME Bank Limited to open Branchless Banking touch points to expandtheir financial services.The organization will also make assessments at the end of the 3-year duration of the project to gauge improvement in locals’ livelihoods by using indicators such as improved lifestyle, access to health facilities, and education, among others.

Likely Outcome

Sakchyam’s support to NWCSC in its various initiatives should see improved access to financial services for beneficiaries who were out of range of available financial institutions. NWCSC’s understanding of the needs of beneficiaries in the region coupled with innovative financial services will help boost economic activity, support real needs such as for remittance earners, and help launch multiple small enterprises as a result of the financial literacy and skill training. Such a holistic approach to access to finance will be a step towards helping the region recover and move into a more sustainable and secure future.

RMDC

“Enhance Inclusive Financial Frontier to the Poor”
Rural Micro Finance Development Centre (RMDC)

 

Background
The UKaid Sakchyam Access to Finance Programme (Sakchyam) is helping the Rural Microfinance Development Centre (RMDC) to increase financial access in Sakchyam’s working districts. RMDC is an apex institution, mandated to provide wholesale lending and build the institutional capacity of MFIs in Nepal. RMDC works with leading MFIs including MFDBs, FINGOs, and cooperatives (single purpose and multi-purpose), and is one of the prominent wholesale lending organizations in the country. Its partners’ outreach constitutes nearly 70% of the entire microfinance industry. Currently, RMDC has only office in Kathmandu with limited human resources, making it difficult to reach remote and inaccessible areas like Karnali, and it is challenging for small MFIs to travel to Kathmandu for lending and capacity building services. Sakchyam’s support will enable RMDC to open two separate regional offices in strategic locations with additional human resources so that it can reach more remote districts and small MFIs. At the same time, RMDC will on-lend 1 billion NPR to partner MFIs, which in turn, will be channelled to their members/clients to establish income-generating activities.

Objectives of partnership
This 3-year project is expected to establish a long-term partnership between RMDC and local MFIs to allow these MFIs to receive wholesale credit to fulfil the credit needs of low-income households. As a result, clients of these MFIs, many living in rural and semi-urban areas, will be able to use the financial resources to generate income-generating activities to improve their economic status. This partnership is also expected to enhance the capacity of MFIs by providing regular training and IT support to automate their manual transaction system. This holistic intervention will help make paradigm shifts in the microfinance industry.

Why Sakchyam’s Interventions
Sakchyam’s support will enable RMDC to open two separate regional offices in strategic locations so that they can reach more remote districts and small MFIs moving forward. Additionally, Sakchyam’s support will also help RMDC to provide institutional capacity building support to over 90 different MFIs around the country.  RMDC will develop the capacity of these partner MFIs and their members/clients by offering financial literacy training, sector-specific Small and Medium Enterprise (SME) promotion trainings, and organizational management support including new product design and digitalising manual transactions.

Likely Outcomes

  • Establish two new branch offices in Kohalpur (Mid-Western Development Region) and Ithari (Eastern Development Region) to provide wholesale loans to its partner financial institutions working in those geographic areas.
  • Establish partnerships with around 90 MFIs (60 new MFIs and around 30 existing RMDC partners) to provide access to finance to an additional 42,000 members/clients in Sakchyam’s intervention districts.
  • On-lend NPR 1 billion wholesale loans to partner MFIs.
  • Provide financial literacy to potential and existing clients of partner MFIs through the partner MFIs.
  • Provide support to computerize the financial transactions of partner MFIs.
  • Provide capacity building training of partner MFIs.
  • Facilitate loan and saving product development among partner MFIs to better cater to the needs of microfinance clients in rural areas.

Chhimek

Digital Mahila:
Digital Women Channel Partners for Gender Inclusive Micro Finance –
Chhimek Laghubitta Bikash Bank Ltd (Chhimek)

Background

Sakchyam is committed to connecting the rural poor, DAGs, and women to formal financial products and services in order to enable them with choices to save, borrow, invest, and earn. While enhancing access to finance for people living in remote and inaccessible regions is an urgent need, efficiency and sustainability of doing so are critical. Sakchyam believes a paradigm shift is needed in the microfinance sector with the adoption of new technology, helping it achieve organisational efficiency and expand its outreach in a more self-sustainable manner.

 

Challenges Faced

Given the diverse socio-economic and geographical context of Nepal, the need to adopt innovative solutions backed by technology is necessary to make possible easy, convenient, and quick financial products and services for rural poor. Currently, microfinance is Nepal considered expensive due to high start-up and monitoring costs. The sector lacks a sophisticated MIS, let alone other technological innovations that can reduce the costs of taking financial services to remote, hard-to-access areas. With limited options, MFIs usually resort to the traditional style of doing almost everything manually. Illustratively, all loan transactions are collected manually at the centre meeting=the only time the group meets monthly—requiring the entire meeting time to collect payments. This leaves little to no time for discussions on financial literacy, client protection, or explaining other products or services offered by the financial institution. Additionally, loan officers have to spend significant time traveling back and forth to a branch or home office and entering the data electronically. This decreases productivity and morale. New loan applications often require a visit to the branch and a laborious paperwork process. For many potential clients, they’ll often forego the extra effort as a local moneylender offers money immediately. Technology to provide alternative delivery channels has the ability to tackle these challenges head on.

 

Sakchyam’s Interventions

Chhimek Laghubitta Bikash Bank Ltd (Chhimek) is a ‘D’ class national level financial institution licensed by the Nepal Rastra Bank (NRB). Chhimek is at the forefront of using mobile-based technology with its core banking system (CBS) to extend its services to remote regions of the Mid- and Far-Western Development Regions (MFWDRs). With Sakchyam’s support, it will launch a female agent banking programme to efficiently increase its outreach. The women recruited will include clients of Chhimek who will be able to reach other women, understanding their needs and challenges.
An agent of Chhimek will be able to identify target clients, conduct financial literacy classes and group/unit meetings every month. She would serve 250-350 clients in the VDC with savings and lending products. Every day she’ll record transactions on the tablet, which is synced with bank’s system online. Every month, branch managers and M&E officers will visit her to ensure compliance with Standard Operation Procedures (SOPs) and provide her any onsite support needed. Any request for loan products exceeding NRP 50,000 will be recommended to the nearest branch.

 

Likely Outcome

The project will deploy 104 women to become agents of the microfinance development bank (MFDB), using technology to significantly reduce the costs of outreach and monitoring. The agents will distribute numerous savings and lending products to 24,196 new female clients over the 3-year project period, unlocking over 613 million NPR in loan funding. Of these clients, 60% will be youth and from marginalized communities, and over 1,027 new SMEs will be served. Finally, Chhimek will launch two new branches in Dadeldhura and Kailali to better serve both its agents and clients.

NEFSCUN

Increased Capacity of Financial Cooperatives and Linkage with Wholesale Lending:
Enabling Cooperatives to Serve Members in Remote Areas with Increased Capacity and Adequate Resources –
Nepal Federation of Savings and Credit Cooperatives Unions Limited (NEFSCUN)

Background

UKaid Sakchyam is committed to connecting rural poor, Disadvantaged Groups, and women to formal financial products and services in order to provide them with choices to save, borrow, invest, and earn. While enhancing access to finance for people living in remote and inaccessible regions is an urgent need, efficiency and sustainability of doing so are critical. Cooperative institutions have played an important role in reaching remote and inaccessible areas of Nepal where most banks and financial institutions do not have a presence. Sakchyam believes a paradigm shift is needed in the microfinance sector to strengthen the capacity of such cooperatives so that they are able to achieve organizational efficiency and expand their outreach in a sustainable manner.

 

Challenges

Given the diverse socio-economic and geographical context of Nepal, the need to adopt innovative solutions backed by technology is necessary to enable convenient access to financial products and services for rural poor communities. Currently, microfinance in Nepal is considered expensive due to high start-up and monitoring costs. Although cooperatives are providing such services, they are doing so with limited institutional capacity and financial resources. Most of these cooperatives working in remote areas undertake credit services through the savings of their members; this does not meet the credit need of their members. There are several wholesale lending financial institutions as well as funds available to MFIs from commercial banks through Deprived Sector Lending (DSL) for these cooperatives.

However, due to their poor institutional capacities, wholesale lending institutions are not channelling their funds to these cooperatives.

Nepal Federation of Savings and Credit Cooperatives Unions Limited (NEFSCUN) has its own inter-lending program through which it provides wholesale loans to cooperatives. But as smaller cooperatives have limited capacity and linkages with NEFSCUN in Kathmandu, these cooperatives are not able to access resources from NEFSCUN itself. With limited reach in remote areas, NEFSCUN too has its own challenges for reaching out to these cooperatives.

 

Sakchyam’s Interventions

NEFSCUN is the apex institution for Nepal’s savings and credit cooperatives movement and is registered with the Department of Cooperatives. It has its own training units and has been implementing promotional activities for savings and credit together with inter lending program since the last two decades. With UKaid Sakchyam’s support, it will launch an “Increased Capacity of Financial Cooperatives and Linkage with Wholesale Lending” program to improve its outreach efficiency. NEFSCUN will add two field offices, in Dang and in Dadeldhura, to reach cooperatives that have not been able to access loans from NEFSCUN’s inter lending programs and also cooperatives that have already borrowed from NEFSCUN but have been unable to diversify their borrowing through other wholesale lenders.

 

Likely Outcome

NEFSCUN will increase its outreach to 30,000 new cooperative members by strengthening the institutional capacity of 200 cooperatives over the project’s 3-year duration. With increased institutional capacity, these cooperatives will be able to access loans from wholesale lending institutions including NEFSCUN and will on-lend to their members more than NPR Six billion in remote outposts of Kailali, Dadeldhura, Doti, Baitadi, Kanchanpur, Rolpa, Pyuthan, Dang, Rukum and Salyan districts.

Sahara

Scaling Up the Access to Financial Products and Services in Rural Nepal
Sahara Nepal Savings and Credit Cooperative Society Ltd. (Sahara)

Background

Sakchyam is committed to connecting the rural poor, DAGs, and women to formal financial products and services in order to enable them with choices to save, borrow, invest, and earn. Appropriate design of financial products and services is one of the pre-requisites for meaningful access to finance, especially for the poor living in remote and unbanked regions. Sakchyam believes a paradigm shift is needed in the microfinance sector with innovative and client need based product design and delivery that ensures viability of the products and hence supports competitiveness and sustainability of the institution.

 

Challenges Faced

Despite a mission to serve the poor, rural, and unbanked populations, many MFIs are heavily concentrated in accessible areas. Unavailability of basic infrastructure and high operational costs in the remote areas are the main challenges.  Additionally, financial institutions normally offer industry products and services that may not match the needs and preferences of the specific clients and also the capacity of the institution. This results in less effective demand for the product, often misuse of the product, and poor portfolio quality. A lack of competitive products adversely affects efficiency and sustainability of the institution. Moreover, lack of proper information on the available financial options, including the products and services, to the target population limits access. Poor people are often using costly and inappropriate products and services due to inadequate financial literacy.

 

Sakchyam’s Interventions

Sahara Nepal Saving and Credit Cooperative Ltd. (Sahara), registered at Jhapa District Cooperative Office, is the largest cooperative in Nepal. Sahara offers various financial products as well as socioeconomic services including insurance, remittances, renewable energy, skill training, awareness and empowerment programs in six districts in the Eastern Development Region of Nepal. With Sakchyam’s support, it will open seven new branches in the Jhapa, Ilam and Sunsari Districts; develop/refine innovative products like loans for alternative energy; housing construction and climate resiliency; rural MSME development; and other financing needs across the value chain. It will also offer its members savings and micro insurance products along with a comprehensive financial literacy package.  Sahara also aims to get SMART Certification, adopting globally-recognized client protection principles. These interventions will improve access to finance for the poor by i) reaching the remote and unbanked areas; ii) providing appropriate financial products and services to the clients; and, iii) supporting clients to make informed financial decisions.

 

Likely Outcome

The project will enable Sahara to reach 22,935 new clients in 45 VDCs across the three districts with 80% in rural areas, 95% women, 40% youth, and 50% from ethnic populations. During the 3-year project period, Sahara will disburse NPR 53 million in renewable energy loans to 6,057 clients, NPR 90 million in low-cost housing Loans to 3,024 clients, and NPR 1.7 million in agriculture, livestock, rural MSME and value chain financing loans to 5,482 clients. Additionally, it plans to issue NPR 3.6 million in micro insurance coverage to 14,563 clients. Similarly, Sahara will provide financial capacity development services to 50,000 clients, financial literacy to 25,000 clients, and youth focused activities to 1,000 clients. With this, Sahara will create 12,000 new jobs, assist 1,323 SMEs, unlock loan NPR 389.89 million and mobilize NPR 1.70 million in savings.

Shikhar Insurance

Weather Index Insurance of Apple Farming in Jumla

Weather related risk has become crucial to reduce vulnerability of smallholder farmers and improve their livelihoods.   Weather Index Insurance (WII) can present significant economic efficiency by allowing farmers to put more resources on agriculture. It will also open door to avail ranges of financial services.

In an effort to contribute WII sector, UKaid funded Sakchyam Access to Finance Programme collaborated with Shikhar Insurance Company Ltd. to introduce WII of apple farmers from Jumla for the first time in Nepal. The program is planned to expand in four more apple growing districts.

 

Product Development

Sakchyam and Shikhar conducted feasibility study in Jumla to understand need for insurance products for farmers. Apple farmers in Jumla were facing major weather related risk of drought and hailstorm for apple production. Last year’s hailstorm in certain part of Jumla caused reduction in production of apple while quality of apple were also not up to the standard. Limited rainfall in April and May correlates with less production of apple as rainfall is required during flowering season of apple.

After analyzing 30 years of historical weather data of a weather station based in Chandannath, Jumla  WII product was developed by technical team of Shikhar and Sakchyam. Under WII, drought is covered and payouts are made to farmers based on rainfall readings at the reference weather station to the farmer’s field. If rainfall of April and May of a year is less than or equal to 60 mm, insured farmers will get automatic payout. Hailstorm was also added as an additional rider though it can’t be measured by weather parameter.  Beema Samiti segregated the risk element form its traditional product which covers different risk of natural disaster, disease based on input cost.  Sum insured of an apple tree is considered as Rs. 1,800 per kg.  Premium of the WII is priced at 8% of sum insured while premium of hailstorm is 1% on input cost. After 75% subsidy of Nepal Government farmers has to pay 2% of sum insured and for hailstorm, farmers have to pay 0.25% of input cost.

 

Awareness of Product

Shikhar has been promoting weather index insurance product aggressively to make farmers understand about the product. While the concept of insurance is still not clear to large population of Nepal, Weather Index Insurance is relatively more complicated to understand by farmers. Therefore, awareness on insurance and the product is key for the success of the product. Use of mass media, pamphlets, insurance literacy program has been used to promote product while making concept of insurance clear to farmers. Shikhar is also planning to launch Interactive Voice Response (IVR) and also visiting group/cooperative to orient farmers about concept of insurance and product of Shikhar.

 

Distribution Channel

Shikhar is using two distribution channels to sell the product. Marketing staff of Shikhar branch office is visiting farmers’ house to promote and sell the product. Shikhar is also collaborating with a local cooperative having networks in all over the Jumla to sell their product. The cooperative will receive certain percentage of commission to make it another revenue center while Shikhar will get benefit by using network of the cooperative.

 

Claim Settlement

Unlike other insurance products, farmers don’t have to hassle for claim settlement of the WII as they will get automatic claim payment. Shikhar will collect rainfall data of  from Department of Hydrology and Metrology and see whether farmers are eligible to get claim or not.

 

Experience of season I

Due to delay in the launching of the product, Shikhar has insured 41 apple farmers of Jumla having 2,432 apple trees in the first season. Total sum insured of WII is 4.377 million. Since cumulative rainfall of Jumla for April and May is more than 61 mm, farmers were not entitled to receive payouts this season. In addition, there are no losses reported from hailstorm in this season. Shikhar has recently established branches in Mugu and Kalikot to offer WII product in those districts and in the process of opening branches in Dolpa and Mustang soon. Shikhar is also in the process of developing products on the basis of historical weather data of those two districts.

 

Ways Ahead

It is believed that introduction of WII will be a crucial breakthrough in the Nepalese Insurance Industry. There are, however, few challenges which has to be fixed before making this product pervasive. Limited coverage of weather station has been a key bottleneck for the expansion of WII in elsewhere. Nepal is no exception. In order to tackle this challenge, Shikhar is collaborating with Sakchyam to explore the possibility of using alternative data sources or establishing new weather station. In addition, other products potential for using WII in other commodity.

NMB Microfinance

Enabling Financial Access on Rural Tourism NMB Microfinance Bittiya Sanstha Limited (NMB MF)

 

Background

UKaid Sakchyam is committed to connecting rural poor, Disadvantaged Groups (DAGs), and women to formal financial products and services in order to provide them with choices to save, borrow, invest, and earn. While enhancing access to finance for people living in remote and inaccessible regions is an urgent need, efficiency and sustainability of doing so are also critical.

When it comes to informal entrepreneurs in Nepal’s remote Himalayan districts, unless a concerted effort is done to meet their financial service needs, their choice is limited to informal financial sources. Sakchyam believes a paradigm shift is needed in the microfinance sector to strengthen the capacity of Microfinance Institutions (MFIs) so that they are able to achieve organizational efficiency and expand their outreach in a sustainable manner.

 

Challenges

Given the diverse socio-economic and geographical context of Nepal, the need to adopt innovative solutions backed by technology is necessary to enable convenient and affordable access to financial products and services for rural poor communities. Currently, microfinance in Nepal is considered expensive due to the high start-up and monitoring costs. Moreover, MSMEs who focus on rural tourism, agribusiness, livestock farming and other micro entrepreneurial activities, are limited by a lack of options from formal financial service providers to meet their needs.

 

Sakchyam’s Intervention

NMB MF registered as a Company, received its banking license in January 2012, from Nepal Rastra Bank under the Bank and Financial Institution Act 2006.  It was established in 2069 B.S. with core mission of inclusive banking. NMB MF is a subsidiary of NMB Bank. With UKaid Sakchyam’s support, it will launch an “Enabling Financial Access on Rural Tourism” to provide access to financial services in five remote districts Manang, Mustang, Rukum, Myagdi and Illam, NMB MF proposes to establish two new branches and five sub branches.

 

Likely Outcome

Over a two-year period, NMB MF will increase its outreach to serve at least new 7,529 individuals, all who will be women and 30% of whom will be from DAGs. It will also create at least 3,564 sustainable MSMEs. To do this, it will introduce Sakchyam Udyamsil Karja, a new financial product for microentrepreneurs. In addition it will introduce mobile banking to clients including launching a Point-of-Service (POS) machine system for rural tourism entrepreneurs to accept cards. In doing so, tour operators hope to be able to increase the amount of transactions received. NMB MF will also develop a comprehensive Financial Literacy Programme paired with skill development training on tourism and hospitality.