Laxmi Bank

EXTENSION OF BANKING PRODUCTS AND SERVICES TO RURAL AND EARTHQUAKE-AFFECTED DISTRICTS

Background

Most of the rural areas in Nepal have small populations scattered over regions that are difficult to reach. The economic landscape of these areas is quite basic – markets consist of small retail outlets and eateries. Most of the youth work abroad as migrant labour. The main source of income is either agriculture or remittance.

On April 25, 2015, Nepal was hit by the devastating Gorkha Earthquake which killed thousands of people and left close to 500,000 people homeless. Some districts have been more affected than others and so the government identified 17 earthquake affected districts to help focus the rescue, relief and rehabilitation efforts.

Challenges

Many people in the earthquake affected districts, especially the rural areas, had their houses completed destroyed or rendered uninhabitable by the quake. They have had to resort to living in temporary communal shelters or risk their lives living inside their damaged homes. The people who want to rebuild their houses do not have access to formal financial services and so have to rely on informal money lenders or local financial institutions for funds to rebuild their homes. Besides reconstruction of homes, people who want to start or re-establish their businesses in these districts cannot do so due to lack of funds.

Sakchyam’s Intervention

UKaid Sakchyam Access to Finance Programme (Sakchyam) and Laxmi Bank agreed to establish the ‘Laxmi – Grameen Sambriddhi Yojana’. The two entities collaborated to provide 2 distinct loan products through 34 branches of Laxmi Laghubitta Bittiya Sanstha Limited (LxLB), Laxmi Bank’s MFI subsidiary. The project spread across 27 districts including the earthquake affected ones – Sindhupalchowk, Dolakha, Nuwakot and Dhading.

Under this partnership, ‘Micro Mortgage Loan’ up to a maximum value of NPR 400,000 was provided for the purpose of construction/reconstruction of residential buildings on land owned by borrower or his/her immediate family member. Special pricing/concession was provided to the survivors of the Gorkha Earthquake in line with Nepal Rastra Bank’s guidelines.

Apart from the assistance provided to the survivors of the Gorkha Earthquake, as a part of this partnership, ‘Laxmi Udyami Karja’ was introduced to finance the working capital requirement and capital expenditure of small businesses. This was the first instance where a ‘D’ class microfinance bank customers were catered by ‘A’ class commercial bank branches. The loan was provided for a maximum tenure of 84 months and up to a maximum value of NPR 1.00 million.  Financial literacy programs also took place for the first 12 months to enable better financial management and understanding for the borrowers.

Likely Impact

The main aim of the project was to improve the living standards of the customers. Micro Mortgage Loan facility provided/improved shelter which is one of the basic needs of the people living in the earthquake affected districts. Laxmi Udyami Karja also enabled small enterprises to kick-start and rebuild their lives and their businesses. The target of the partnership was to build a portfolio of NPR 400 million within a period of 1 year through 1,000 borrowers.

As of June 2018, the bank has been able to disburse loans amounting to NPR 1.06 billion to more than 3000 beneficiaries, exceeding the target. Two products i.e. Livestock loan and E-Rickshaw Loan have seen wider adoption by the target clients.